 THE MONETARY METHOD AND THE SIZE OF THE SHADOW ECONOMY: A CRITICAL ASSESSMENTHildegart Ahumada (), Facundo Alvaredo () and Alfredo Canavese Review of Income and Wealth, 2007, vol. 53, issue 2, 363-371 Abstract: A widely applied approach to measure the size of the shadow economy, known as the “monetary method” or the “currency approach,” is based on econometric estimates of the demand for money. These estimates are used to get the currency held by economic agents in excess of the amount they need to finance registered transactions. This excess of currency multiplied by the income‐velocity of circulation (assumed to be equal in the registered and shadow economies) gives a measure of the hidden GDP. This paper shows that the monetary method only produces coherent estimates if the income‐elasticity of the demand for currency is one and suggests a way to correct the estimated size of the shadow economy when such elasticity is not one. The correction is applied to existent measures for different countries. Date: 2007 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:revinw:v:53:y:2007:i:2:p:363-371 Ordering information: This journal article can be ordered from Access Statistics for this article Review of Income and Wealth is currently edited by Conchita D'Ambrosio and Robert J. Hill More articles in Review of Income and Wealth from International Association for Research in Income and Wealth Contact information at EDIRC. |
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