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Abstract

This paper uses the New Keynesian framework designed in (Uhlig and Xie, 2021) to explore how consumer's adoption of multiple digital currencies can transform the dominant currency paradigm (DCP) into a multiple currency paradigm (MCP). The result shows that consumers' changing preference for currencies can change the relative demands across sectors and prompt firms to adjust their pricing strategy. The consumers, therefore, trigger a reallocation of the currency distribution across international markets at the aggregate level, transforming a DCP into an MCP, with implications for sectoral output gap and inflation.

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