The impact of central bank digital currency news on the stock and cryptocurrency markets: Evidence from the TVP-VAR model

Helmi, Mohamad Husam; Çatık, Abdurrahman Nazif; Akdeniz, Coşkun

Abstract

This study employs a non-linear framework to investigate the impacts of central bank digital currency (CBDC) news on the financial and cryptocurrency markets. The time-varying vector autoregressive (TVP-VAR) model developed by Primiceri (2005) is estimated based on weekly data from the first week of January 2015 to the last week of December 2021. The vector of endogenous variables in the VAR estimation contains the Central Bank Digital Currency uncertainty index (CBDCU), cryptocurrency policy uncertainty index, S&P 500 index, VIX, and Bitcoin price. The TVP-VAR model’s time-varying responses demonstrated that the reactions of the cryptocurrency market to central bank digital currency announcements vary remarkably over time. The impacts of the CBDC shocks on the financial market have been increasingly visible during the COVID-19 pandemic. According to the time-varying forecast error decompositions, CBDCU and VIX shocks have accounted for most of the variance in cryptocurrency uncertainty and Bitcoin return shocks, notably during the COVID-19 period.

Citation

Helmi, M. H., Çatık, A. N., & Akdeniz, C. (2023). The impact of central bank digital currency news on the stock and cryptocurrency markets: Evidence from the TVP-VAR model. Research in International Business and Finance, 65, Article 101968. https://doi.org/10.1016/j.ribaf.2023.101968

• Journal Article Type: Article
• Acceptance Date: Apr 20, 2023
• Online Publication Date: Apr 30, 2023
• Publication Date: 2023-04
• Deposit Date: Oct 30, 2023
• Publicly Available Date: Oct 30, 2023
• Journal: Research in International Business and Finance
• Print ISSN: 0275-5319
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 65
• Article Number: 101968
• DOI: https://doi.org/10.1016/j.ribaf.2023.101968
• Keywords: Finance; Business, Management and Accounting (miscellaneous)
• Public URL: https://durham-repository.worktribe.com/output/1871389