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Revised estimates of the Underground Economy: Implications of US Currency held abroad

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  • Feige, Edgar L.

Abstract

The paper reexamines the strengths and weakness of all direct and indirect methods of estimating the amount of US currency held abroad and concludes that between 25% -45% of US currency is held abroad. This result stands in sharp contrast to the widely cited estimates presented by Porter and Judson (1996) who claim that between 55% -70% of US currency is held abroad. The new estimates of currency held abroad are used to derive a domestic currency series which is then employed in a conventional currency ratio model to estimate the size and growth of the unreported economy in the US between 1973 and 1994.

Suggested Citation

  • Feige, Edgar L., 1997. "Revised estimates of the Underground Economy: Implications of US Currency held abroad," MPRA Paper 13805, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:13805
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    File URL: https://mpra.ub.uni-muenchen.de/13805/1/MPRA_paper_13805.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. Laurent, Robert D, 1974. "Currency in Circulation and the Real Value of Notes," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 6(2), pages 213-226, May.
    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 303-303.
    4. Gregory D. Hess & David H. Small & Flint Brayton, 1993. "Nominal income targeting with the monetary base as instrument: an evaluation of McCallum's rule," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
    5. Russell C Krueger & Jiming Ha, 1995. "Measurement of Co-Circulation of Currencies," IMF Working Papers 95/34, International Monetary Fund.
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    Citations

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    Cited by:

    1. Edgar Feige & James Dean, 2002. "Dollarization and Euroization in Transition Countries: Currency Substitution, Asset Substitution, Network Externalities and Irreversibility," International Finance 0205003, University Library of Munich, Germany.
    2. Calza Alessandro & Zaghini Andrea, 2011. "Welfare Costs of Inflation and the Circulation of U.S. Currency Abroad," The B.E. Journal of Macroeconomics, De Gruyter, vol. 11(1), pages 1-21, May.
    3. Nikolaus Bartzsch & Gerhard Rösl & Franz Seitz, 2012. "A simple way to capture currency abroad," Applied Economics Letters, Taylor & Francis Journals, vol. 19(15), pages 1511-1514, October.
    4. Philippe Adair, 2012. "The Non-Observed Economy in the European Union Countries (EU-15): A Comparative Analysis of Estimates," Chapters,in: Tax Evasion and the Shadow Economy, chapter 5 Edward Elgar Publishing.
    5. Friedrich Schneider & Dominik Enste, 1999. "Shadow Economies Around the World - Size, Causes, and Consequences," CESifo Working Paper Series 196, CESifo Group Munich.
    6. George M. Georgiou, 2007. "Measuring the Size of the Informal Economy: A Critical Review," Working Papers 2007, Central Bank of Cyprus.
    7. Feige, Edgar L., 2009. "New estimates of overseas U.S. currency holdings, the Underground economy and the "Tax Gap"," MPRA Paper 19564, University Library of Munich, Germany.
    8. Feige, Edgar L., 2012. "The myth of the “cashless society”: How much of America’s currency is overseas?," MPRA Paper 42169, University Library of Munich, Germany.
    9. Altmann, Markus & Bartzsch, Nikolaus, 2014. "Der Transaktionskassenbestand von Euro-Münzen in Deutschland
      [The volume of euro coins held for transaction purposes in Germany]
      ," MPRA Paper 59545, University Library of Munich, Germany.
    10. Edgar L. Feige, 2003. "The Dynamics of Currency Substitution, Asset Substitution and De facto Dollarization and Euroization in Transition Countrieses," Macroeconomics 0305003, University Library of Munich, Germany.
    11. Enste, Dominik & Schneider, Friedrich, 1998. "Increasing Shadow Economies all over the World - Fiction or Reality?," IZA Discussion Papers 26, Institute for the Study of Labor (IZA).
    12. Bartzsch, Nikolaus & Rösl, Gerhard & Seitz, Franz, 2013. "Estimating the foreign circulation of banknotes," Economics Letters, Elsevier, vol. 119(2), pages 165-167.
    13. Adenutsi, Deodat E. & Yartey, Charles A., 2007. "Financial sector development and the macrodynamics of ‘de facto’ dollarisation in developing countries: the case of Ghana," MPRA Paper 29333, University Library of Munich, Germany.
    14. Feige, Edgar L., 2011. "New estimates of U.S. currency abroad, the domestic money supply and the unreported Economy," MPRA Paper 34778, University Library of Munich, Germany.
    15. Richard D. Porter & Gretchen C. Weinbach, 1998. "Currency ratios and U.S. underground economic activity," Finance and Economics Discussion Series 1998-41, Board of Governors of the Federal Reserve System (U.S.).
    16. Philippe Beaugrand, 2003. "Overshooting and Dollarization in the Democratic Republic of the Congo," IMF Working Papers 03/105, International Monetary Fund.
    17. Porter, Richard D. & Weinbach, Gretchen C., 1999. "Currency ratios and U.S. underground economic activity," Economics Letters, Elsevier, vol. 63(3), pages 355-361, June.
    18. Philippe Adair, 2009. "Économie non observée et emploi informel dans les pays de l'Union européenne. Une comparaison des estimations et des déterminants," Revue économique, Presses de Sciences-Po, vol. 60(5), pages 1117-1153.

    More about this item

    Keywords

    Underground Economy; Unreported Economy; Unrecorded Economy; Currency Abroad; Shadow Economy; Tax gap; Location of US Currency;

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • C82 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data; Data Access
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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