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The demand for currency and the underground economy

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Abstract

The underground economy in Canada has attracted increased attention over the past few years, yet there is no precise way to measure its size. Recent estimates vary between 4 per cent and 15 per cent of gross domestic product. This article provides an overview of measurement issues and recent estimates. It then focusses on the "monetary" approach to estimating the size of the underground economy. This approach is based on the assumption that the demand for bank notes provides a clue as to the size of the underground economy. The article concludes that estimates that use this approach must be viewed with considerable caution. They are based on a number of assumptions that are difficult to verify and that significantly affect the results.

Suggested Citation

  • Thérèse Laflèche, 1994. "The demand for currency and the underground economy," Bank of Canada Review, Bank of Canada, vol. 1994(Autumn), pages 39-58.
    • Handle: RePEc:bca:bcarev:v:1994:y:1994:i:autumn94:p:39-58
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    1. Edgar L. Feige, 1979. "How Big Is the Irregular Economy?," Challenge, Taylor & Francis Journals, vol. 22(5), pages 5-13, November.
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    Cited by:

    1. Zangeneh, Hamid, 2007. "An Estimate of Iran’s Underground Economy: A Monetary Approach," MPRA Paper 26619, University Library of Munich, Germany, revised 2009.

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    More about this item

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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