A Two-Period Decision Model for Central Bank Digital Currencies and Households

Central bank digital currencies (CBDCs) give rise to many possibilities including those of negative interest rates. A two-period decision model is presented between one central and representative household. The applies the Taylor (1993) rule choose its rate. household allocates resources strategically production, consumption, CBDC holding, non-CBDC holding. results are determined analytically illustrated numerically by varying 19 parameter values. Interesting novelties article that may rates when holds far more than non-CBDC, for low inflation rates, real household’s potential weight assigned in rule, high target rate, production parameter. That usually causes decrease holding increase consumption. rate compete with an increasing if transaction efficiencies increase, or efficiency consumption decreases. Shocks analyzed.