IDEAS home Printed from https://ideas.repec.org/p/fip/fedfwp/98046.html
   My bibliography  Save this paper

A Macroeconomic Model of Central Bank Digital Currency

Author

Listed:

Abstract

We develop a quantitative New Keynesian DSGE model to study the introduction of a central bank digital currency (CBDC): government-backed digital money available to retail consumers. At the heart of our model are monopolistic banks with market power in deposit and loan markets. When a CBDC is introduced, households benefit from an expansion of liquidity services and higher deposit rates as bank deposit market power is curtailed. However, deposits also flow out of the banking system and bank lending contracts. We assess this welfare trade-off for a wide range of economies that differ in their level of interest rates. We find substantial welfare gains from introducing a CBDC with an optimal interest rate that can be approximated by a simple rule of thumb: the maximum between 0% and the policy rate minus 1%.

Suggested Citation

  • Pascal Paul & Mauricio Ulate & Jing Cynthia Wu, 2024. "A Macroeconomic Model of Central Bank Digital Currency," Working Paper Series 2024-11, Federal Reserve Bank of San Francisco.
    • Handle: RePEc:fip:fedfwp:98046
    DOI: 10.24148/wp2024-11
    as

    Download full text from publisher

    File URL: https://www.frbsf.org/wp-content/uploads/wp2024-11.pdf
    File Function: Full text - article PDF
    Download Restriction: no
    File URL: https://libkey.io/10.24148/wp2024-11?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    More about this item

    Keywords

    central banks; digital currencies; banks; DSGE models; monetary policy; central bank;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedfwp:98046. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Federal Reserve Bank of San Francisco Research Library (email available below). General contact details of provider: https://edirc.repec.org/data/frbsfus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.