nep-pay New Economics Papers
on Payment Systems and Financial Technology
Issue of 2020‒10‒05
eighteen papers chosen by

  1. Covid-19 impact on cryptocurrencies: evidence from a wavelet-based Hurst exponent By M. Bel\'en Arouxet; Aurelio F. Bariviera; Ver\'onica E. Pastor; Victoria Vampa
  2. A Machine Learning Based Regulatory Risk Index for Cryptocurrencies By Xinwen Ni; Wolfgang Karl H\"ardle; Taojun Xe
  3. Eggs in One Basket: Security and Convenience of Digital Currencies By Charles M. Kahn; Francisco Rivadeneyra; Tsz-Nga Wong
  4. Digital Entrepreneurship Research: A Concise Introduction By Naudé, Wim; Liebregts, Werner
  5. Platform Design when Sellers Use Pricing Algorithms By Johnson, Justin Pappas; Rhodes, Andrew; Wildenbeest, Matthij
  6. Broadband Internet and Household Welfare in Senegal By Masaki, Takaaki; Ochoa, Rogelio Granguillhome; Rodriguez Castelan, Carlos
  7. Kill Zone By Sai Krishna Kamepalli; Raghuram G. Rajan; Luigi Zingales
  8. La pobreza digital en México: un análisis de indicadores de uso y disponibilidad tecnológica By Alejandro Nava Galán; Albania Padilla Martínez; ;
  9. Further from the Truth: The Impact of In-Person, Online, and mTurk on Dishonest Behavior By Dickinson, David L.; McEvoy, David M.
  10. Token-Based Platform Finance By Lin William Cong; Ye Li; Neng Wang
  11. How broadband internet affects labor market matching By Bhuller, Manudeep; Kostøl, Andreas R.; Vigtel, Trond C.
  12. Coin migration between Germany and other euro area countries By Uhl, Matthias
  13. The technical components of interoperability as a tool for competition regulation By Brown, Ian
  14. Measuring skill and chance in different versions of Poker By Lambrecht, Marco
  15. Is Downside Risk Priced In Cryptocurrency Market? By Victoria Dobrynskaya
  16. What do high-frequency expenditure network data reveal about spending and inflation during COVID‑19? By Kim Huynh; Helen Lao; Patrick Sabourin; Angelika Welte
  17. Stablecoins: Implications for monetary policy, financial stability, market infrastructure and payments, and banking supervision in the euro area By Force, ECB Crypto Assets Task
  18. Did State Reopenings Increase Consumer Spending? By Rajashri Chakrabarti; Sebastian Heise; Davide Melcangi; Maxim L. Pinkovskiy; Giorgio Topa

  1. By: M. Bel\'en Arouxet; Aurelio F. Bariviera; Ver\'onica E. Pastor; Victoria Vampa
    Abstract: Cryptocurrency history begins in 2008 as a means of payment proposal. However, cryptocurrencies evolved into complex, high yield speculative assets. Contrary to traditional financial instruments, they are not (mostly) traded in organized, law-abiding venues, but on online platforms, where anonymity reigns. This paper examines the long term memory in return and volatility, using high frequency time series of eleven important coins. Our study covers the pre-Covid-19 and the subsequent pandemia period. We use a recently developed method, based on the wavelet transform, which provides more robust estimators of the Hurst exponent. We detect that, during the peak of Covid-19 pandemic (around March 2020), the long memory of returns was only mildly affected. However, volatility suffered a temporary impact in its long range correlation structure. Our results could be of interest for both academics and practitioners.
    Date: 2020–09
  2. By: Xinwen Ni; Wolfgang Karl H\"ardle; Taojun Xe
    Abstract: Cryptocurrencies' values often respond aggressively to major policy changes, but none of the existing indices informs on the market risks associated with regulatory changes. In this paper, we quantify the risks originating from new regulations on FinTech and cryptocurrencies (CCs), and analyse their impact on market dynamics. Specifically, a Cryptocurrency Regulatory Risk IndeX (CRRIX) is constructed based on policy-related news coverage frequency. The unlabeled news data are collected from the top online CC news platforms and further classified using a Latent Dirichlet Allocation model and Hellinger distance. Our results show that the machine-learning-based CRRIX successfully captures major policy-changing moments. The movements for both the VCRIX, a market volatility index, and the CRRIX are synchronous, meaning that the CRRIX could be helpful for all participants in the cryptocurrency market. The algorithms and Python code are available for research purposes on
    Date: 2020–09
  3. By: Charles M. Kahn; Francisco Rivadeneyra; Tsz-Nga Wong
    Abstract: Digital currencies store balances in anonymous electronic addresses. We analyze the trade-offs between safety and convenience of aggregating balances in addresses, electronic wallets and banks. In our model agents balance the risk of theft of a large account with the cost to safeguarding a large number of passwords of many small accounts. Account custodians (banks, wallets and other payment service providers) have different objectives and tradeoffs on these dimensions; we analyze the welfare effects of differing industry structures and interdependencies, and in particular the consequences of "password aggregation" programs which in effect consolidate risks across accounts.
    Keywords: digital currencies; wallets; hacking; theft; welfare
    JEL: E42 E51 E58
    Date: 2020–09–04
  4. By: Naudé, Wim (RWTH Aachen University); Liebregts, Werner (Tilburg University)
    Abstract: In the past few decades, technological progress has led to the digitization and digitalization of economies into what one could now call digital economies. The COVID-19 pandemic will accelerate the development of the digital economy. In a digital economy, digital entrepreneurs pursue opportunities to produce and trade in digital artifacts on digital artifact stores or platforms, and/or to create these digital artifact stores or platforms themselves. There is a well-recognized need for more research on digital entrepreneurship. As such, this paper provides an overview of the central research questions currently being pursued in this field. These include questions such as: What is digital entrepreneurship? What is different in the digital economy from an entrepreneurial perspective? What is the impact of digitalization - and big data - on business models and entrepreneurship? How can digital entrepreneurship be supported and regulated? The paper identifies areas of neglect, and makes proposals for future research.
    Keywords: gig economy, digital platforms, network effects, digital artifacts, digital entrepreneurship, digital entrepreneurial ecosystems
    JEL: L26 D21 M13 O33
    Date: 2020–09
  5. By: Johnson, Justin Pappas; Rhodes, Andrew; Wildenbeest, Matthij
    Abstract: Using both economic theory and Artificial Intelligence (AI) pricing algorithms, we investigate the ability of a platform to design its marketplace to promote competition, improve consumer surplus, and even raise its own profits. We allow sellers to use Q-learning algorithms (a common reinforcement-learning technique from the computer-science literature) to devise pricing strategies in a setting with repeated interactions, and consider the effect of steering policies that reward firms that cut prices with additional exposure to consumers. Overall, the evidence from our experiments suggests that platform design decisions can meaningfully benefit consumers even when algorithmic collusion might otherwise emerge but that achieving these gains may require more than the simplest steering policies when algorithms value the future highly. We also find that policies that raise consumer surplus can raise the profits of the platform, depending on the platform’s revenue model. Finally, we document several learning challenges faced by the algorithms.
    Date: 2020–09–08
  6. By: Masaki, Takaaki (World Bank); Ochoa, Rogelio Granguillhome (World Bank); Rodriguez Castelan, Carlos (World Bank)
    Abstract: Senegal has experienced a rapid expansion in fixed and mobile broadband Internet infrastructure over the past decade. This paper examines the relationship between access to broadband internet and household welfare between 2011 and 2018 by integrating the latest two rounds of household budget surveys with data on the location of fiber-optic transmission nodes and coverage maps of third-generation (3G) mobile technology. Results show that 3G coverage is associated with a 14 percent increase in total consumption and a 10 percent decline in extreme poverty. These results are robust to controlling for spatial characteristics and access to complementary digital infrastructure, as well as to an instrumental variable approach that relies on distance to 3G coverage in neighboring areas. These effects are larger among households in urban areas and households headed by men or younger cohorts. Although in the same direction, welfare effects of proximity to fixed broadband infrastructure are not statistically significant.
    Keywords: poverty, household consumption, mobile broadband, Africa, Senegal
    JEL: F63 I31 L86 O12
    Date: 2020–09
  7. By: Sai Krishna Kamepalli (University of Chicago - Booth School of Business); Raghuram G. Rajan (University of Chicago - Booth School of Business and International Monetary Fund (IMF)); Luigi Zingales (University of Chicago - Booth School of Business)
    Abstract: We study why high-priced acquisitions of entrants by an incumbent do not necessarily stimulate more innovation and entry in an industry (like that of digital platforms) where customers face switching costs and enjoy network externalities. The prospect of an acquisition by the incumbent platform undermines early adoption by customers, reducing prospective payoffs to new entrants. This creates a Òkill zoneÓ in the space of startups, as described by venture capitalists, where new ventures are not worth funding. Evidence from changes in investment in startups by venture capitalists after major acquisitions by Facebook and Google suggests this is more than a mere theoretical possibility.
    Date: 2020
  8. By: Alejandro Nava Galán (U de Colima); Albania Padilla Martínez (U de Colima); ;
    Abstract: México enfrenta grandes retos para la incorporación, uso y aprovechamiento de las Tecnologías de la Información y Comunicaciones (TIC) en la sociedad, en paralelo con el problema de la pobreza que afecta un amplio sector de la población. En esta investigación se realiza un análisis a partir de indicadores estadísticos de fuentes oficiales, con la finalidad de resaltar la relación entre las TIC y la pobreza convencional, con lo que se contribuye en la comprensión del concepto de pobreza digital y con ello se evidencia, que las restricciones económicas acentúan la diferenciación social. Se concluye que además de los dispositivos electrónicos, el elemento central para el aprovechamiento de las TIC, es el acceso y disponibilidad a Internet: el gasto necesario en los hogares representa una proporción importante del ingreso disponible, que para una gran parte de la población esto se traduce en quedar al margen de los beneficios de la denominada revolución digital.
    Keywords: Uso y disponibilidad TIC, pobreza digital, sociedad y tecnología.
    JEL: I32
    Date: 2020–01–08
  9. By: Dickinson, David L. (Appalachian State University); McEvoy, David M. (Appalachian State University)
    Abstract: Recent policies require some interactions previously conducted in close social proximity (e.g., school, workplace) to take place remotely, which motivates our investigation of how in-person versus online environments impact honesty. We modify a well-known coin-flip task and examine the influence of going from the physical laboratory environment, to online with identifiable participants (same lab subject pool), to online with anonymous participants using mTurk. Surprisingly, while a simple move from in-lab to online (using the same subject pool) appears to increase "fake effort" – those who likely never flip the coin - it does not predict more dishonest behavior when there is a monetary incentive to cheat. The most socially distant and anonymous participants (mTurk) are more likely to be deemed cheaters in our analysis—these individuals report coin flip outcomes consistent with cheating for monetary gain. Implications of our findings indicate the greatest risk of potentially costly dishonest behavior results when anonymity, not just social distance, is high.
    Keywords: social distance, cheating, coin flip, anonymity, behavioral economics, experiment
    JEL: C91 D90
    Date: 2020–09
  10. By: Lin William Cong; Ye Li; Neng Wang
    Abstract: We develop a dynamic model of platform economy where tokens derive value by facilitating transactions among users and the platform conducts optimal token-supply policy. Token supply increases when new tokens are issued to finance platform growth and to reward platform owners. Token supply decreases when the platform buys back tokens to boost the franchise value (seigniorage). Although token price is endogenously determined in a liquid market, the platform’s financial constraint generates an endogenous token issuance cost that causes under-investment and conflicts of interest between insiders (owners) and outsiders (users). Blockchain technology improves efficiency by enabling commitment to predetermined rules of token supply that address the platform owners’ time inconsistency and thereby mitigates under-investment.
    JEL: E5 G3
    Date: 2020–09
  11. By: Bhuller, Manudeep; Kostøl, Andreas R.; Vigtel, Trond C.
    Abstract: How the internet affects job matching is not well understood due to a lack of data on job vacancies and quasi-experimental variation in internet use. This paper helps fill this gap using plausibly exogenous roll-out of broadband infrastructure in Norway, and comprehensive data on recruiters, vacancies and job seekers. We document that broadband expansions increased online vacancy-postings and lowered the average duration of a vacancy and the share of establishments with unfilled vacancies. These changes led to higher job-finding rates and starting wages and more stable employment relationships after an unemployment-spell. Consequently, our calculations suggest that the steady-state unemployment rate fell by as much as one-fifth.
    Keywords: Unemployment, Information, Job Search, Matching
    JEL: D83 J63 J64 L86
    Date: 2020–01
  12. By: Uhl, Matthias
    Abstract: Euro coins have a common European side and an individual national side. Thanks to coin migration, coins bearing a panoply of national sides are in circulation throughout the euro area. In this paper, we model the mixing of coins circulating in the euro area countries and in particular the extent of coin migration in the euro area. A model calibration suggests that, for the coin denominations €2, €1, 50 cent and 20 cent roughly the same quantity of euro coins migrate from Germany to the rest of the euro area as vice versa. Accordingly, the relatively large quantities of coins issued by the Federal Republic of Germany are not materially explained by exports of coins to other euro area countries.
    Keywords: Euro coins,coin circulation,coin mixing
    JEL: E41
    Date: 2020
  13. By: Brown, Ian
    Abstract: The first paper in this series, Interoperability as a tool for competition regulation, focused on policy issues. This second paper looks at the technical details and requirements of interoperability in practice. The third paper will analyse the impact of interoperability on phenomena such as disinformation and privacy (preliminarily covered in the first paper). As well as a review of relevant policy and computer science literature, these papers draw on 10 semi-structured interviews with software developers, platform operators, technical standards experts, current and former government officials, and academic and civil society experts working in this field. This paper is intended to support civil society and parliamentary groups developing positions on ex ante competition rules in the EU’s proposed Digital Services Act, and digital competition reforms in other jurisdictions.
    Date: 2020–09–10
  14. By: Lambrecht, Marco
    Abstract: This paper aims to measure skill and chance in different versions of online poker, using the best-fit Elo algorithm established in the first chapter. While Texas Hold'em arguably is the most popular version being played, the amount of skill involved might differ from other versions like Omaha Hold'em. Many platforms offer faster procedures to play (e.g. "hyper turbo"), as well as different levels of stakes. Given the richness of online poker data, it is possible to isolate the impact of these variations individually. The heterogeneity of best-fit Elo ratings decreases in quicker competitions or with higher stakes. Meanwhile, Omaha seems to contain more elements of skill than Texas Hold'em, as its analysis shows a wider distribution of skill levels of players.
    Keywords: Elo-rating; measuring skill and chance; Poker
    Date: 2020–09–11
  15. By: Victoria Dobrynskaya (National Research University Higher School of Economics)
    Abstract: I look at the cryptocurrency market through the prism of standard multifactor asset-pricing models with particular attention to the downside market risk. The analysis for 1,700 coins reveals that there is a significant heterogeneity in the exposure to the downside market risk, and that a higher downside risk exposure is associated with higher average returns. The extra downside risk is priced with a statistically significant premium in cross-sectional regressions. Adding the downside risk component to the CAPM and the 3-factor model for cryptocurrencies improves the explanatory power of the models significantly. The downside risk is orthogonal to the size and momentum risks and constitutes an important forth component in the multifactor cryptocurrency pricing model.
    Keywords: cryptocurrency, coins, cryptofinance, alternative investments, downside risk, DR-CAPM
    JEL: D14 G12 G15
    Date: 2020
  16. By: Kim Huynh; Helen Lao; Patrick Sabourin; Angelika Welte
    Abstract: The official consumer price index (CPI) inflation measure, based on a fixed basket set before the COVID 19 pandemic, may not fully reflect what consumers are currently experiencing. We partnered with Statistics Canada to construct a more representative index for the pandemic with weights based on real-time transaction and survey data.
    Keywords: Inflation and prices; Payment clearing and settlement systems
    JEL: D1 D12 E3 E31 E4 E42 E5 E52
    Date: 2020–09
  17. By: Force, ECB Crypto Assets Task
    Abstract: This paper summarises the outcome of an analysis of stablecoins undertaken by the ECB Crypto-Assets Task Force. At the time of writing, the stablecoin debate lacks a common taxonomy and unambiguous terminology. This paper applies a definition that distinguishes stablecoins from existing forms of currencies – regardless of the technology used – and characterises stablecoin arrangements based on the functions they fulfil. This approach emphasises the role of technology-neutral regulation in preventing arbitrage, as well as comprehensive Eurosystem oversight, irrespective of stablecoins’ regulatory status. Against this background, this paper assesses stablecoins’ implications for the euro area based on three scenarios for the uptake of stablecoins: (i) as a crypto-assets accessory function; (ii) as a new payment method; and (iii) as an alternative store of value. While the first scenario is merely the continuation of the current state of the market and, thus far, has not posed concerns for the financial sector and/or central bank tasks, stablecoins of the type envisaged in the second scenario may reach a scale such that financial stability risks can become material, and the safety and efficiency of the payment system may be affected. The third scenario is both the least plausible and the most relevant from a monetary policy perspective. The paper concludes that the Eurosystem relies on appropriate regulation, oversight, and supervision to manage the implications of stablecoins (and the risks that stem from them) on its mandate and tasks under plausible scenarios. The Eurosystem continues monitoring the evolution of the stablecoin market and stands ready to respond to rapid changes in all possible scenarios. JEL Classification: E42, G21, G23, O33
    Keywords: implications of stablecoins, oversight, regulation, stablecoins
    Date: 2020–09
  18. By: Rajashri Chakrabarti; Sebastian Heise; Davide Melcangi; Maxim L. Pinkovskiy; Giorgio Topa
    Abstract: The spread of COVID-19 in the United States has had a profound impact on economic activity. Beginning in March, most states imposed severe restrictions on households and businesses to slow the spread of the virus. This was followed by a gradual loosening of restrictions (“reopening”) starting in April. As the virus has re-emerged, a number of states have taken steps to reverse the reopening of their economies. For example, Texas and Florida closed bars again in June, and Arizona additionally paused operations of gyms and movie theatres. Taken together, these measures raise the question of how closures and reopenings affect consumer spending. In this post, we investigate how much consumer spending increased after the reopenings. It is important to stress that we are not expressing any views on the normative question of whether, when, or how states should loosen or tighten restrictions aimed at controlling the COVID-19 pandemic.
    Keywords: consumer spending; COVID-19; credit cards; reopening
    JEL: E2
    Date: 2020–09–18

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NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.