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Forecasting macroeconomic effects of stablecoin adoption: A Bayesian approach

Author

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  • Bojaj, Martin M.
  • Muhadinovic, Milica
  • Bracanovic, Andrej
  • Mihailovic, Andrej
  • Radulovic, Mladen
  • Jolicic, Ivan
  • Milosevic, Igor
  • Milacic, Veselin

Abstract

This study analyzes the effect of stablecoin adoption on key macroeconomic factors in Montenegro. The main explanation for the adoption of stablecoins is their one-to-one peg to various currencies and commodities. Previous studies have relied on the relationships among cryptocurrencies and thus could not disentangle the country-level macroeconomic effects of stablecoins from the effects of other cryptocurrencies. Using data from January 2006 to December 2019, we decompose the correlation between cryptocurrencies and their effects on the economy due to (a) shocks to stablecoins and (b) shocks to Bitcoin. Contrary to assumptions, stablecoins do not maintain their peg in “crash times” but do promote economic growth. Bitcoin's volatility deanchors investor expectations, disrupts markets, and destabilizes key macroeconomic factors. Our novel findings indicate that stablecoin adoption should not be based only on a one-to-one assumption and reveal the mechanism of key gaps by a prudential authority.

Suggested Citation

  • Bojaj, Martin M. & Muhadinovic, Milica & Bracanovic, Andrej & Mihailovic, Andrej & Radulovic, Mladen & Jolicic, Ivan & Milosevic, Igor & Milacic, Veselin, 2022. "Forecasting macroeconomic effects of stablecoin adoption: A Bayesian approach," Economic Modelling, Elsevier, vol. 109(C).
    • Handle: RePEc:eee:ecmode:v:109:y:2022:i:c:s0264999322000384
    DOI: 10.1016/j.econmod.2022.105792
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    Cited by:

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    2. Radosław Miśkiewicz & Krzysztof Matan & Jakub Karnowski, 2022. "The Role of Crypto Trading in the Economy, Renewable Energy Consumption and Ecological Degradation," Energies, MDPI, vol. 15(10), pages 1-15, May.
    3. Sood, Kirti & Singh, Simarjeet & Behl, Abhishek & Sindhwani, Rahul & Kaur, Sandeepa & Pereira, Vijay, 2023. "Identification and prioritization of the risks in the mass adoption of artificial intelligence-driven stable coins: The quest for optimal resource utilization," Resources Policy, Elsevier, vol. 81(C).
    4. Jin, Feng & Li, Jingwei & Xue, Yi, 2023. "Preferring stablecoin over dollar: Evidence from a survey of Ethereum platform traders," Journal of International Money and Finance, Elsevier, vol. 131(C).
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    7. Bojaj, Martin M. & Djurovic, Gordana & Fabris, Nikola & Milovic, Nikola, 2023. "Top 1% and inequality connectedness in the EMU and WB," International Review of Economics & Finance, Elsevier, vol. 83(C), pages 139-155.

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    More about this item

    Keywords

    Bitcoin; Connectedness; Forecast; Macroeconometrics; Policy objective; Stablecoin adoption;
    All these keywords.

    JEL classification:

    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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