Macroeconomic Implications of Partial Cryptoization: Evidence From El Salvador

Abstract

El Salvador's monetary regime change in September of 2021 made bitcoin a legal tender alongside the U.S. Dollar. I evaluate the effects of this partial cryptoization on El Salvador's sovereign credit default swap (CDS) spreads using difference-in-differences (DiD) estimation. My methodology indicates that the regime change caused an increase in El Salvador's CDS spreads and in the variance of those spreads. These increases are indicative of a 16 percent increase in country risk. I calibrate a Dynamic Stochastic General Equilibrium (DSGE) model using the results of my DiD analysis to simulate how this increase in the variance of CDS spreads may impact macroeconomic behavior. My results suggest that El Salvador's GDP will experience three times greater fluctuation as a result of bitcoin adoption. This paper also examines the causal impact of the monetary regime change on remittance inflows to El Salvador. Using the synthetic control method (SCM) and DiD estimation, I do not consistently find a causal effect on remittances.

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Document Details

Document Type
Technical Report
Publication Date
May 16, 2023
Accession Number
AD1207038

Entities

People

  • Kyle R. Beasley

Organizations

  • United States Naval Academy

Tags

Communities of Interest

  • Energy and Power Technologies
  • Human Systems

DTIC Thesaurus Topics

  • Abstracts
  • Case Studies
  • Commerce
  • Contracts
  • Costa Rica
  • Department Of Defense
  • Economics
  • El Salvador
  • Governments
  • Hispanics
  • Information Science
  • International Organizations
  • Investments
  • Latin America
  • Monetary Policy
  • Money
  • National Governments
  • Productivity
  • Standards
  • United States
  • United States Naval Academy

Readers

  • Computational Modeling and Simulation
  • Economics
  • Materials Science and Engineering.