American Economic Journal:
Macroeconomics
ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)
Parallel Digital Currencies and Sticky Prices
American Economic Journal: Macroeconomics
(pp. 336–83)
Abstract
The rise of digital currencies may result in domestic parallel currencies. Their exchange rate shocks present new challenges for monetary policy. We analyze these issues in a New Keynesian framework. Firms set prices in one of the currencies. A one-time appreciation of a parallel currency results in persistent redistributions toward the Dollar sector output and inflation. We calculate optimal monetary policy. When price stickiness is homogeneous, it is optimal to leave nominal interest rates unchanged. We compare optimal policy to three Taylor rules. Higher dollar price rigidity may lead to an increase rather than a decrease in the Dollar sector.Citation
Uhlig, Harald, and Taojun Xie. 2026. "Parallel Digital Currencies and Sticky Prices." American Economic Journal: Macroeconomics 18 (1): 336–83. DOI: 10.1257/mac.20220220Additional Materials
JEL Classification
- E12 General Aggregative Models: Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
- E23 Macroeconomics: Production
- E31 Price Level; Inflation; Deflation
- E42 Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems
- E52 Monetary Policy
- F33 International Monetary Arrangements and Institutions