The views expressed in the papers on this site are those of the authors and do not necessarily represent those of the Deutsche Bundesbank or the Eurosystem.

Working papers

Anonymity, Secondary Demand, and the Velocity of Cryptocurrency

To fill in the gap of understanding how cryptocurrencies differ from existing electronic payment means from the consumers’ perspective and what these differences imply, this paper generalizes the canonical search-theoretic model to capture two previously overlooked features of cryptocurrencies: 1) anonymity-seeking individuals prefer cryptocurrencies for online payments; and 2) they purchase their cryptocurrencies secondhand to avoid revealing their identities. This generalization allows demand for cryptocurrencies to be governed by not only transaction motives but also by speculation, and is capable of explaining the observed negative correlation between Bitcoin velocity and opportunity cost, contrary to the positive correlation observed in conventional currencies. I conduct a counterfactual exercise to illustrate the impact of anonymity-motivated secondary demand on cryptocurrency price, and discuss the implications for monetary policy and national security risk. Besides the application in cryptocurrencies, my model is suitable for studying the informal economy in general.

Believe It or Not: How Directed Technical Change and a Bit of Optimism Lead the Economy Towards Green Growth [with Sjak Smulders]

Directed technical change (DTC) may stimulate clean innovations and phase out polluting technologies, thus contributing to climate change policy. In the existing literature, market size and initial conditions determine whether the direction of technical change is clean or dirty, and path dependency arises. However, as the literature on coordination failures has pointed out in a different context, expectations play an important role in forward-looking decision makings. This paper shows how multiple equilibria easily arise in a standard workhorse model of DTC, when innovators are forward-looking. In our model there is a range of initial conditions from which both an equilibrium with clean innovation and an equilibrium with dirty innovation can emerge. With “optimistic” beliefs, the transition to clean technologies materializes, while with “pessimistic” beliefs, polluting technologies dominate in the long run. The range for which this multiplicity arises depends on the degree of substitutability of the final goods from the two sectors. Implications of the overlap for environmental policies are also investigated.

Closing the Loop in a Circular Economy: Saving Resources or Suffocating Innovations? [with Sjak Smulders] (Early and incomplete draft. Available upon request.)

Policymakers around the world are increasingly embracing the idea of a “circular economy” (CE), an economy built on the principle of re-use of materials and produced goods through recycling, refurbishing, and extended product life. By using less new materials per unit of value added, a CE is considered good for both the environment and the economy. Yet closing the material loop also changes the structure of the economy and the incentives for labor- and resource-productivity enhancing innovations. The overall economic impact is thus not so clear. This paper develops a two-sector endogenous growth model with Schumpeterian innovation, where the primary sector continuously develops new products and uses primary resources in production, while the secondary sector refurbishes retired products for re-use. We show that increased refurbishing increases short-run consumption, but reduces the incentives for developing new, possibly less resource-intensive products. If innovations are strongly resource-saving, raising the refurbishing rate leads to a net economic loss.

Work in progress

Currency Exchange in Competitive Search Equilibrium [with Benoit Julien and Randall Wright]
Asymmetric Information and Overinvestment of Fossil Fuel Assets

Published (pre-doctoral)

Cisneros E, Zhou SL, Börner J (2015) Naming and Shaming for Conservation: Evidence from the Brazilian Amazon. PLoS ONE 10(9): e0136402.