STABLECOINS AND KEY ECONOMIC FACTORS: ANALYSING CORRELATIONS AND SPILLOVERS USING THE DIEBOLD-YILMAZ FRAMEWORK
Keywords:
Stablecoin Market, Cryptocurrency Volatility, Diebold-Yilmaz Model, Volatility Spillover Effects, Economic Indicators, Cryptocurrency Performance.Abstract
This investigation explores how major stablecoins—Tether (USDT), USD Coin (USDC), Pax Dollar (USDP) and DAI—interact with the comparative crypto asset Bitcoin USD (BITUSD) and a set of core macro-financial indicators comprising the EUR/USD exchange rate, Bitcoin movements, and leading global equity benchmarks such as the NASDAQ 100 and EURO STOXX 50 over the period 2019–2024. The analytical framework applies the Diebold–Yilmaz (DY) spillover approach embedded in a Vector Autoregressive (VAR) specification to evaluate volatility transmission, co-movement patterns, and directional linkages across markets. The study employs statistical procedures including the Augmented Dickey–Fuller (ADF) assessment of stationarity, Forecast Error Variance Decomposition (FEVD), and the Total Connectedness Index (TCI) to quantify stability characteristics, cross-market dependencies, and propagation channels. The empirical analysis reveals a discernible though moderate level of interconnectedness between stablecoins and wider macro-financial conditions. Bitcoin and BITUSD emerge as principal pathways through which shocks circulate, whereas USDP and USDC exhibit comparatively stronger insulation and stability. Variations in currency markets and global equity performance exert notable influence on stablecoin volatility, reinforcing their growing alignment with international financial systems. Overall, the evidence confirms that stablecoins remain exposed to macroeconomic forces and may intensify links between digital-asset markets and conventional financial structures. The outcomes highlight an urgent need for more rigorous regulatory clarity, strengthened reserve-reporting standards, and supervision calibrated to risk to sustain monetary resilience. For investors and institutions, stablecoins offer scope for portfolio diversification, although their hedging capacity is highly sensitive to evolving market behaviour and policy environments.