Abstract
In our dynamic general equilibrium model, agents can invest in money and in a production technology exposed to shocks. If the government is non-benevolent and has a monopoly over money issuance it issues too much money, to finance excessive public expenditures. We study the effects of a cryptocurrency in limited supply but with crash risk. If the crash risk is not too large, competition from the cryptocurrency constrains the government’s monetary policy. If the government is non-benevolent, this constraint improves citizens welfare, but if the government is rather benevolent competition from the cryptocurrency can lower citizens’ welfare.
Reference
Bruno Biais, Jean-Charles Rochet, and Stéphane Villeneuve, “Do cryptocurrencies matter?”, TSE Working Paper, n. 25-1643, May 2025.
See also
Published in
TSE Working Paper, n. 25-1643, May 2025