US Monetary Policy Uncertainty and Changes in Cryptocurrency Market: Evidence from ARIMA Model

Tianyi Lu

doi:10.54097/hbem.v20i.12331

Authors

Tianyi Lu

DOI:

https://doi.org/10.54097/hbem.v20i.12331

Keywords:

Cryptocurrency, Bitcoin, US, Federal Reserve, interest rates, inflation, ARMA model.

Abstract

In 2022, the US Federal Reserve implemented multiple monetary policy to control inflation, significantly impacting the financial markets. This study focuses on examining the impact of the Federal Reserve's announcements of rising interest rates on the price of Bitcoin. By utilizing the ARMA model and analyzing historical price data, the research aims to uncover the price dynamics of Bitcoin in response to changes in the Federal Reserve's interest rate decisions. The findings indicate that ultra-short term of the Bitcoin prices is not influenced by interest rate hikes. However, there is a notable correlation, where higher interest rates are associated with lower Bitcoin prices in the short term. The study's findings provide crucial insights into how the cryptocurrency market responds to the actions taken by the Federal Reserve, thus offering valuable information for investors and analysts in this domain. Policymakers should exercise caution in observing cryptocurrency movements and consider the impact of monetary policy on digital assets as they continue to play an increasingly significant role in the overall economy.

Downloads

Download data is not yet available.

References

Cox J. Federal Reserve approves first interest rate hike in more than three years, sees six more ahead [EB/OL]. CNBC. (2022-3-16) [2023-7-31]. https://www.cnbc.com/2022/03/16/federal-reserve-meeting.html.

Milstein E, Wessel D. What did the Fed do in response to the COVID-19 crisis? [EB/OL]. BROOKINGS. (2021-12-17) [2023-7-31]. https://www.brookings.edu/articles/fed-response-to-covid19/.

Montevirgen K. What investment types can I use to build a diversified portfolio? [EB/OL]. Britannica Money. [2023-7-31]. https://www.britannica.com/money/investment-types.

U.S. Bank. How do rising interest rates affect the stock market? [EB/OL] (2023-7-19) [2023-8-1] https://www.usbank.com/investing/financial-perspectives/market-news/how-do-rising-interest-rates-affect-the-stock-market.html.

Statista. Bitcoin (BTC) price per day from Apr 2013 – Jul 30, 2023 [EB/OL]. [2023-8-1]. https://www.statista.com/statistics/326707/bitcoin-price-index/.

Baur D G, Hong K, Lee A D. Bitcoin: Medium of exchange or speculative assets? [J]. Journal of International Financial Markets, Institutions and Money, 2018, 54: 177-189.

Bouri E, Gupta R, Roubaud D. Herding behaviour in cryptocurrencies [J]. Finance Research Letters, 2019, 29: 216-221.

Kristoufek L. BitCoin meets Google Trends and Wikipedia: Quantifying the relationship between phenomena of the Internet era [J]. Scientific reports, 2013, 3(1): 3415.

Alzahrani S, Daim T U. Analysis of the cryptocurrency adoption decision: Literature review [C] // 2019 Portland International Conference on Management of Engineering and Technology (PICMET). IEEE, 2019: 1-11.

White K, Buonocore C, Goel A, et al. The Macroeconomic Impact of Cryptocurrency and Stablecoins [C] // World Economic Forum. Retrieved. 2022, 5: 2023.

Havidz S A H, Karman V E, Mambea I Y. Is Bitcoin Price Driven by Macro-financial Factors and Liquidity? A Global Consumer Survey Empirical Study [J]. Organizations and Markets in Emerging Economies, 2021, 12(2): 399-414.

Conlon T, Corbet S, McGee R J. Inflation and cryptocurrencies revisited: A time-scale analysis [J]. Economics Letters, 2021, 206: 109996.

Cagan P, Gandolfi A. The lag in monetary policy as implied by the time pattern of monetary effects on interest rates [J]. The American Economic Review, 1969, 59(2): 277-284.

Atmander E. FEDERAL FUNDS RATE ON BITCOIN VOLATILITY: Using the symmetric GARCH and asymmetric EGARCH models [J]. 2021.

Benigno G, Rosa C. The Bitcoin–Macro Disconnect [J]. FRB of New York Staff Report, 2023 (1052).

Azari A. Bitcoin price prediction: An ARIMA approach [J]. arXiv preprint arXiv:1904.05315, 2019.