De Roure, Calebe;
Tasca, Paolo;
(2024)
Bitcoin and the PPP Puzzle.
(SRC Discussion Paper
16).
Systemic Risk Centre, London School of Economics and Political Science: London, UK.
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Abstract
This paper approaches the PPP puzzle by using the Bitcoin/US Dollar exchange rate. The use of the virtual currency as macroeconomic laboratory allows us to remove frictions that previously impeded the empirical demonstration of the law of one price. We show that price adjustments are still far from perfect due to information asymmetry between agents. Nevertheless, the real exchange rate is stationary and adjusts by 81% within one day. Finally, because of the different speed of information spread, good market arbitrage takes place in the Bitcoin economy but not in the US economy. Thus, we conclude that in a frictionless economy the PPP holds and the speed of arbitrage for the good market depends on the speed of information spread among agents.
| Type: | Working / discussion paper |
|---|---|
| Title: | Bitcoin and the PPP Puzzle |
| Open access status: | An open access version is available from UCL Discovery |
| Publisher version: | https://www.systemicrisk.ac.uk/publications/discus... |
| Language: | English |
| Additional information: | This version is the version of record. For information on re-use, please refer to the publisher’s terms and conditions. |
| Keywords: | Bitcoin, Purchase Power Parity, Silk Road |
| UCL classification: | UCL UCL > Provost and Vice Provost Offices > UCL BEAMS UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science > Dept of Computer Science |
| URI: | https://discovery.ucl.ac.uk/id/eprint/10180005 |
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