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International monetary policy and cryptocurrency markets: dynamic and spillover effects

Elsayed, Ahmed H. and Sousa, Ricardo M. (2022) International monetary policy and cryptocurrency markets: dynamic and spillover effects. European Journal of Finance. ISSN 1351-847X

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Identification Number: 10.1080/1351847X.2022.2068375

Abstract

Using daily data over the period August 5, 2013–September 27, 2019, this study investigates the dynamic spillovers between international monetary policies across four major economies (i.e. Eurozone, Japan, UK and US) and three key cryptocurrencies (i.e. Bitcoin, Litecoin and Ripple). In doing so, we apply a Time-Varying Parameter Vector Auto-Regression (TVP-VAR) model, a dynamic connectedness approach and network analysis. The empirical results indicate that cryptocurrency returns and monetary policy spillovers were particularly large when shadow policy rates became negative, moderated during the Fed's ‘tapering process’, and sharpened again more recently as cryptocurrency buoyancy returned. Gross directional spillovers suggest that shadow policy rates have more ‘to give than to receive’, while those from and to cryptocurrency returns are naturally volatile. There is also strong interconnectedness between monetary policy in either the US or the Eurozone and the UK, and between Bitcoin and Litecoin. However, the spillovers across monetary policy and cryptocurrencies tend to be muted. Finally, spillovers were only slightly larger during the Fed's ‘unconventional’ policy compared to the ‘standard’ era, but their composition qualitatively changed over time.

Item Type: Article
Official URL: https://www.tandfonline.com/journals/rejf20
Additional Information: © 2022 The Authors
Divisions: Economics
Subjects: H Social Sciences > HG Finance
JEL classification: C - Mathematical and Quantitative Methods > C3 - Econometric Methods: Multiple; Simultaneous Equation Models; Multiple Variables; Endogenous Regressors > C32 - Time-Series Models
C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C50 - General
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E43 - Determination of Interest Rates; Term Structure of Interest Rates
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy (Targets, Instruments, and Effects)
G - Financial Economics > G1 - General Financial Markets > G10 - General
Date Deposited: 07 Jun 2022 15:09
Last Modified: 14 Jun 2022 14:27
URI: http://eprints.lse.ac.uk/id/eprint/115305

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