Cash in Circulation and the Shadow Economy: An Empirical Investigation for Euro Area Countries and Beyond

Franz Seitz, Hans-Eggert Reimers and Friedrich Schneider ()

No 7143, CESifo Working Paper Series from CESifo

Abstract: We analyze the net issues of the national euro area central banks in relation to the dynamics of the shadow economy within a panel cointegration framework. Besides the total net issues, we distinguish between large, medium and small euro banknotes and take due account of other determinants of cash demand. We find a significant and positive relationship between the net issues and the size of the shadow economy only for medium notes. And this result seems to be driven by the smaller euro area countries. The use of large and small denominations is obviously not driven by the shadow economy. For comparison purposes, we also present panel results for eight non-euro area countries (Australia, Canada, Japan, Norway, Sweden, Switzerland, UK, US). For these countries, we are not able to establish an economically meaningful and statistically significant cash demand equation including the shadow economy.

Keywords: banknotes; net issues; shadow economy; cash demand function; panel cointegration (search for similar items in EconPapers)
JEL-codes: C23 E41 E58 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-eec, nep-iue, nep-mac and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_7143

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