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Overseas Holdings Of U.S.Currency And The Underground Economy

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Author Info
Edgar L. Feige (University of Wisconson-Madison)

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Abstract

Many public policy decisions require analytical and empirical knowledge concerning the size, growth, causes and consequences of the ‘underground economy”. This paper seeks to clarify the meaning of underground activity, updates various discrepancy and fiscal estimates of its size and growth, and examines the empirical implications of new evidence concerning the growing use of US currency (dollarization) throughout the world for indirect estimates of the underground economy in the U.S. The paper examines all indirect and direct methods of estimating the amount of US currency held abroad and concludes that between 40% -45% of US currency is held abroad. This result stands in sharp contrast to the estimates presented by Porter and Judson (1996) who claim that as much as 55% -70% of US currency is held abroad. The new estimates of overseas currency are used to derive a domestic currency series which is the appropriate variable for use in currency demand models that purport to provide estimates of the size of the underground economy. This paper appears in Exploring the Underground Economy: Studies of Illegal and Unreported Activity. Susan Pozo (ed.) W.E Upjohn Institute for Employment Research, Kalamazoo, MI, 1996

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Paper provided by EconWPA in its series Macroeconomics with number 0501022.

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Length: 57 pages
Date of creation: 18 Jan 2005
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Handle: RePEc:wpa:wuwpma:0501022

Note: Type of Document - pdf; pages: 57
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Web page: http://129.3.20.41

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Related research
Keywords: currency abroad; underground economy; unreported income; unrecorded income; non-observed income; currency demand; demand for money; money supply.;

Find related papers by JEL classification:
E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
F3 - International Economics - - International Finance
O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

This paper has been announced in the following NEP Reports:

Cited by:
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  1. Schneider, Friedrich & Klinglmair, Robert, 2004. "Shadow Economies around the World: What Do We Know?," IZA Discussion Papers 1043, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  2. Nienke Oomes, 2003. "Network Externalities and Dollarization Hysteresis: The Case of Russia," IMF Working Papers 03/96, International Monetary Fund. [Downloadable!]
  3. Friedrich Schneider & Christopher Bajada, 2003. "The Size and Development of the Shadow Economies in the Asia-Pacific," Economics working papers 2003-01, Department of Economics, Johannes Kepler University Linz, Austria. [Downloadable!]
  4. Friedrich Schneider, 2004. "Shadow Economies around the World: What do we really know?," IAW Discussion Papers 16, Institut für Angewandte Wirtschaftsforschung (IAW). [Downloadable!]
    Other versions:
  5. Friedrich Schneider, 2006. "Shadow Economies and Corruption all over the World: What do we really Know?," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  6. Edgar L. Feige, 2001. "Taxation for the 21st Century: The Automated Payment Transaction (APT) Tax," Public Economics 0106001, EconWPA. [Downloadable!]
    Other versions:
  7. Schneider, Friedrich, 2004. "The Size of the Shadow Economies of 145 Countries all over the World: First Results over the Period 1999 to 2003," IZA Discussion Papers 1431, Institute for the Study of Labor (IZA). [Downloadable!]
  8. Yunus Aksoy & Tomasz Piskorski, 2005. "U.S. Domestic Money, Inflation and Output," Birkbeck Working Papers in Economics and Finance 0506, Birkbeck, School of Economics, Mathematics & Statistics. [Downloadable!]
    Other versions:
  9. Vedran Sosic & Michael Faulend, 2002. "Dollarisation and the Underground Economy: Accidental Partners?," Occasional paper series 15, Institute of Public Finance. [Downloadable!]
  10. Edgar L. Feige & Vedran Šošiæ & Michael Faulend & Velimir Šonje, 2002. "Unofficial Dollarization in Latin America: Currency Substitution, Network Externalities and Irreversibility," International Finance 0205002, EconWPA. [Downloadable!]
  11. Andreas Bühn & Alexander Karmann & Friedrich Schneider, 2007. "Size and Development of the Shadow Economy and of Do-it-yourself Activities in Germany," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  12. Chang Woon Nam & Andrea Gebauer & Ruediger Parsche, 2003. "Is the Completion of EU Single Market Hindered by VAT Evasion?," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  13. Schneider, Friedrich, 2002. "The Size and Development of the Shadow Economies of 22 Transition and 21 OECD Countries," IZA Discussion Papers 514, Institute for the Study of Labor (IZA). [Downloadable!]
  14. Ernste, 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). [Downloadable!]
  15. Shinkevich Andrey, 2002. "Dollarization Hysteresis in Russia," EERC Working Paper Series 00-087e, EERC Research Network, Russia and CIS. [Downloadable!]
  16. Friedrich Schneider, 2000. "Illegal activities, but still values added ones (?): size, causes, and measurement of the shadow economies all over the world," Economics working papers 2000-10, Department of Economics, Johannes Kepler University Linz, Austria. [Downloadable!]
    Other versions:
  17. Ruth Judson & Richard Porter, 2003. "Estimating the worldwide volume of counterfeit U.S. currency: data and extrapolation," Finance and Economics Discussion Series 2003-52, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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