Abstract
We develop a dynamic stochastic general equilibrium (DSGE) model to study the impact of central bank digital currencies (CBDCs) on the financial sector. We focus on the effects of interest- and non- interest-bearing CBDCs during financial crises and their interactions with the effective lower bound. In addition, we analyze the role of central bank funding and a rule-based variable interest rate on CBDCs. We find that CBDCs crowd out bank deposits. However, this crowding out effect can be mitigated if the central bank chooses to provide additional central bank funds or disincentivize large-scale CBDC accumulation through low CBDC interest rates.
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