Effect of Monetary Policy Decisions and Announcements on the Price of Cryptocurrencies: An Elastic-Net With Arima Residuals Approach
y | 20 jun 2024
Publicado en línea: 20 jun 2024
Páginas: 77 - 92
Recibido: 29 feb 2024
Aceptado: 07 may 2024
DOI: https://doi.org/10.2478/jec-2024-0006
Palabras clave
© 2024 Tomas Peciulis et al., published by Sciendo
This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
Research purpose.
This study analysed the three cryptocurrencies with the largest market capitalization: Bitcoin, Ether (cryptocurrency built upon the Ethereum project's blockchain technology), and Binance coin, which account for 60% of the total cryptocurrency market capitalization. The purpose of this research was to measure the impact of monetary policy on the price of these cryptocurrencies using an adjusted R squared.
Design / Methodology / Approach.
As dependent variables, we used interest rates controlled by the European Central Bank and the Federal Reserve and reports from the European Central Bank and the Federal Open Market Committee. A robust Elastic Net Regression with Autoregressive Integrated Moving Average (ARIMA) residuals machine learning approach was applied to obtain robust regression coefficients and corresponding standard errors. To ascertain the robustness of the model, a technique known as rolling window cross-validation was employed.
Findings.
The results of this study show that monetary policy decisions and announcements significantly impact the price of cryptocurrencies. The impact on cryptocurrencies is likely to be significant both in the period of economic stability (2018-2020) and in the period of economic shocks (2020-2022). This relationship is likely to be indirect, acting through investor sentiment.
Originality / Value / Practical implications.
The results of this study may be useful to monetary policymakers, as they reveal the link between their actions and the price of cryptocurrencies. Our model will also be useful for mutual fund managers and private investors, as they can anticipate the price dynamics of cryptocurrencies when assessing monetary policy frameworks.