The Impact of China's Monetary Policy on Cryptocurrency Volatility-Taking BTC, ETH, and USDT as Examples
DOI: https://doi.org/10.62517/jel.202614227
Author(s)
Tianyu Zheng
Affiliation(s)
School of Law/School of Statistics, Capital University of Economics and Business, China
Abstract
This study aims to explore the impact of China's monetary policy on the volatility of three cryptocurrencies. Empirical analysis is conducted using vector autoregression (VAR), time-varying parametric VAR, and the DY2012 spillover index model. The study finds that while China's monetary policy is a Granger cause of cryptocurrency volatility, its static average effect is statistically insignificant. Dynamic analysis indicates that this effect is time-varying and heterogeneous, with Bitcoin showing the highest sensitivity, while the stablecoin USDT is primarily affected by interest rates. Furthermore, the cryptocurrency market exhibits strong internal volatility correlations. However, the study explicitly states that the conclusions should be interpreted with caution, as the models have limited explanatory power and the results are highly sensitive to model specifications, suggesting that the main drivers of cryptocurrency volatility may not be traditional monetary policy variables.
Keywords
China's Monetary Policy; Cryptocurrency Volatility; Multi-Currency Comparison
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