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The monetary method to measure the shadow economy: The forgotten problem of the initial conditions

  • Ahumada, Hildegart
  • Alvaredo, Facundo
  • Canavese, Alfredo

We show that when the money demand function used to estimate the size of the shadow economy includes the lagged dependent variable, the need to assume a known initial condition reappears as it was the case in the early monetary methods.

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Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 101 (2008)
Issue (Month): 2 (November)
Pages: 97-99

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Handle: RePEc:eee:ecolet:v:101:y:2008:i:2:p:97-99
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  1. Hildegart Ahumada & Facundo Alvaredo & Alfredo Canavese, 2007. "The monetary method and the size of the shadow economy: A critical assessment," Post-Print hal-00812851, HAL.
  2. Edgar L. Feige, 2004. "How Big IS the Irregular Economy?," Macroeconomics 0404005, EconWPA.
  3. Phillip Cagan, 1958. "The Demand for Currency Relative to the Total Money Supply," Journal of Political Economy, University of Chicago Press, vol. 66, pages 303.
  4. Isachsen, Arne Jon & Strom, Steiner, 1985. "The Size and Growth of the Hidden Economy in Norway," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 31(1), pages 21-38, March.
  5. Trevor Breusch, 2005. "Australia's Cash Economy: Are the Estimates Credible?," The Economic Record, The Economic Society of Australia, vol. 81(255), pages 394-403, December.
  6. Tanzi, Vito, 1999. "Uses and Abuses of Estimates of the Underground Economy," Economic Journal, Royal Economic Society, vol. 109(456), pages F338-47, June.
  7. Philip Cagan, 1958. "The Demand for Currency Relative to Total Money Supply," NBER Books, National Bureau of Economic Research, Inc, number caga58-1, December.
  8. Trevor Breusch, 2005. "Australia's Cash Economy: Are the estimates credible?," Macroeconomics 0509025, EconWPA, revised 23 Sep 2005.
  9. Schneider, Friedrich, 1986. " Estimating the Size of the Danish Shadow Economy Using the Currency Demand Approach: An Attempt," Scandinavian Journal of Economics, Wiley Blackwell, vol. 88(4), pages 643-68.
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