Gauging Demand for Cryptocurrency over the Economic Policy Uncertainty and Stock Market Volatility

This paper analyzes the response of cryptocurrency returns to the movement of economic policy uncertainty (EPU) and stock market volatility (VIX), as well as a few macroeconomic variables: gold price, interest rate, inflation rate, and oil price. Vector error correction model and regression model ar...

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Bibliographic Details
Published in:Computational economics 2024-07, Vol.64 (1), p.37-55
Main Authors: Chowdhury, Emon Kalyan, Abdullah, Mohammad Nayeem
Format: Article
Language:English
Subjects:
Behavioral/Experimental Economics
Central banks
Computer Appl. in Social and Behavioral Sciences
Control stability
Digital currencies
Economic analysis
Economic conditions
Economic policy
Economic Theory/Quantitative Economics/Mathematical Methods
Economics
Economics and Finance
Error analysis
Error correction
Financial institutions
Impact analysis
Inflation rates
Interest rates
Math Applications in Computer Science
Money supply
Operations Research/Decision Theory
Regression models
Regulation
Securities markets
Uncertainty
Uncertainty analysis
Variables
Volatility
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Summary:This paper analyzes the response of cryptocurrency returns to the movement of economic policy uncertainty (EPU) and stock market volatility (VIX), as well as a few macroeconomic variables: gold price, interest rate, inflation rate, and oil price. Vector error correction model and regression model are applied to examine the linkage between these variables using data from 2015 to 2022. The analysis reveals that the selected variables have a positive and significant impact on cryptocurrency returns. This suggests that cryptocurrency can be considered a safe haven for investment. The paper also suggests a number of policies to ensure the protection of investment, control money supply and stock market instability, stabilize economic uncertainty, and systematize economic variables. This paper advocates a well-connected network and active participation of stakeholders such as government, central bank, security exchange, and financial institutions will help to streamline irrational movements and enhance the acceptability of cryptocurrencies through the framing and implementation of necessary regulations.
ISSN:0927-7099
1572-9974
DOI:10.1007/s10614-023-10423-1