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

Author

Listed:
  • Franz Seitz
  • Hans-Eggert Reimers
  • Friedrich Schneider

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.

Suggested Citation

  • Franz Seitz & Hans-Eggert Reimers & Friedrich Schneider, 2018. "Cash in Circulation and the Shadow Economy: An Empirical Investigation for Euro Area Countries and Beyond," CESifo Working Paper Series 7143, CESifo.
    • Handle: RePEc:ces:ceswps:_7143
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    2. Walter Engert & Ben Fung & Björn Segendorf, 2019. "A Tale of Two Countries: Cash Demand in Canada and Sweden," Discussion Papers 2019-7, Bank of Canada.
    3. Cronin, David, 2021. "Whither Cash in Payments?," Quarterly Bulletin Articles, Central Bank of Ireland, pages 64-87, January.
    4. Jacek Pietrucha, 2021. "Drivers of the Cash Paradox," Risks, MDPI, vol. 9(12), pages 1-17, December.
    5. Michele Manna, 2022. "The bonfire of banknotes," Temi di discussione (Economic working papers) 25, Bank of Italy, Economic Research and International Relations Area.
    6. Stefan Petranov & Dimitar Zlatinov & Ilia Atanasov, 2022. "The Shadow Economy in Bulgaria During the Period 2006-2019," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 5, pages 3-18.
    7. Emanuele Borgonovo & Stefano Caselli & Alessandra Cillo & Donato Masciandaro & Giovanno Rabitti, 2018. "Cryptocurrencies, central bank digital cash, traditional money: does privacy matter?," BAFFI CAREFIN Working Papers 1895, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    8. Rainone, Edoardo, 2023. "Tax evasion policies and the demand for cash," Journal of Macroeconomics, Elsevier, vol. 76(C).
    9. Anton Schautzer & Helmut Stix, 2019. "Approaching 20 years of euro cash in Austria: What has changed, and what’s next?," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue Q1-Q2/19, pages 99-112.
    10. Jacek Pietrucha & Grzegorz Maciejewski, 2020. "Precautionary Demand for Cash and Perceived Risk of Electronic Payments," Sustainability, MDPI, vol. 12(19), pages 1-25, September.
    11. Tamás Végsõ, 2020. "Comparative Analysis of the Changes in Cash Demand in Hungary," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 19(1), pages 90-118.
    12. António Rua, 2021. "Modelling currency demand: the case of the euro," Empirical Economics, Springer, vol. 61(4), pages 1865-1881, October.

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    More about this item

    Keywords

    banknotes; net issues; shadow economy; cash demand function; panel cointegration;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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