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

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

Abstract

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.

Suggested Citation

  • Ahumada, Hildegart & Alvaredo, Facundo & Canavese, Alfredo, 2008. "The monetary method to measure the shadow economy: The forgotten problem of the initial conditions," Economics Letters, Elsevier, vol. 101(2), pages 97-99, November.
  • Handle: RePEc:eee:ecolet:v:101:y:2008:i:2:p:97-99
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    References listed on IDEAS

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    1. 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 643-668.
    2. 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.
    3. Philip Cagan, 1958. "The Demand for Currency Relative to Total Money Supply," NBER Chapters,in: The Demand for Currency Relative to Total Money Supply, pages 1-37 National Bureau of Economic Research, Inc.
    4. Trevor Breusch, 2005. "Australia's Cash Economy: Are the estimates credible?," Macroeconomics 0509025, University Library of Munich, Germany, revised 23 Sep 2005.
    5. Tanzi, Vito, 1999. "Uses and Abuses of Estimates of the Underground Economy," Economic Journal, Royal Economic Society, vol. 109(456), pages 338-347, June.
    6. 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.
    7. Edgar L. Feige, 2004. "How Big IS the Irregular Economy?," Macroeconomics 0404005, University Library of Munich, Germany.
    8. Hildegart Ahumada & Facundo Alvaredo & Alfredo Canavese, 2007. "The Monetary Method And The Size Of The Shadow Economy: A Critical Assessment," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 53(2), pages 363-371, June.
    9. Phillip Cagan, 1958. "The Demand for Currency Relative to the Total Money Supply," Journal of Political Economy, University of Chicago Press, vol. 66, pages 303-303.
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    Citations

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    Cited by:

    1. Roberto Dell'Anno & Ferda Halicioglu, 2010. "An ARDL model of unrecorded and recorded economies in Turkey," Journal of Economic Studies, Emerald Group Publishing, vol. 37(6), pages 627-646, November.
    2. Muhammad Farooq Arby & Muhammad Jahanzeb Malik & Muhammad Nadim Hanif, 2010. "The Size of Informal Economy in Pakistan," Working Papers id:2493, eSocialSciences.
    3. Quintano, Claudio & Mazzocchi, Paolo, 2013. "The shadow economy beyond European public governance," Economic Systems, Elsevier, vol. 37(4), pages 650-670.
    4. Gerhard Graf, 2011. "Some stylised facts about cash and black economies in Germany," European Journal of Law and Economics, Springer, vol. 32(1), pages 51-67, August.
    5. Gebhard Kirchgässner, 2017. "On Estimating the Size of the Shadow Economy," German Economic Review, Verein für Socialpolitik, vol. 18(1), pages 99-111, February.
    6. Betty Annan & William Bekoe & Edward Nketiah-Amponsah, 2013. "Determinants of Tax Evasion in Ghana: 1970-2010," International Journal of Business and Economic Sciences Applied Research (IJBESAR), Eastern Macedonia and Thrace Institute of Technology (EMATTECH), Kavala, Greece, vol. 6(3), pages 97-121, December.
    7. Guerino Ardizzi & Carmelo Petraglia & Massimiliano Piacenza & Gilberto Turati, 2014. "Measuring the Underground Economy with the Currency Demand Approach: A Reinterpretation of the Methodology, With an Application to Italy," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 60(4), pages 747-772, December.
    8. Michael Pickhardt & Jordi Sardà, "undated". "Cash, Hoarding and the Underground Economy," Working Papers 201282, Institute of Spatial and Housing Economics, Munster Universitary.
    9. Michael Pickhardt & Jordi Sarda, 2011. "The size of the underground economy in Germany: a correction of the record and new evidence from the modified-cash-deposit-ratio approach," European Journal of Law and Economics, Springer, vol. 32(1), pages 143-163, August.
    10. Michael Pickhardt & Jordi Sardà, 2015. "Size and causes of the underground economy in Spain: a correction of the record and new evidence from the MCDR approach," European Journal of Law and Economics, Springer, vol. 39(2), pages 403-429, April.
    11. Nizar, Muhammad Afdi & Purnomo, Kuntarto, 2011. "Potensi Penerimaan Pajak Dari Underground Economy Di Indonesia
      [underground economy activities in Indonesia]
      ," MPRA Paper 65608, University Library of Munich, Germany.
    12. James Alm & Abel Embaye, 2013. "Using Dynamic Panel Methods to Estimate Shadow Economies Around the World, 1984-2006," Working Papers 1303, Tulane University, Department of Economics.
    13. González-Fernández, Marcos & González-Velasco, Carmen, 2015. "Analysis of the shadow economy in the Spanish regions," Journal of Policy Modeling, Elsevier, vol. 37(6), pages 1049-1064.
    14. Michael Pickhardt & Aloys Prinz, 2012. "The Nature of Tax Evasion and the Shadow Economy," Chapters,in: Tax Evasion and the Shadow Economy, chapter 1 Edward Elgar Publishing.
    15. Piotr Dybka & Michal Kowalczuk & Bartosz Olesinski & Marek Rozkrut & Andrzej Toroj, 2017. "Currency demandand MIMIC models: towards a structured hybrid model-based estimation of the shadow economy size," Working Papers 2017-030, Warsaw School of Economics, Collegium of Economic Analysis.
    16. Matti Viren, 2015. "Why so little revenues are obtained from a presumed large shadow economy?," Economics of Governance, Springer, vol. 16(2), pages 101-123, May.

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