Currency ratios and U.S. underground economic activity

Richard D. Porter and Gretchen Weinbach ()

No 1998-41, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Cagan's classic currency ratio suggests that underground economic activity in the U.S. surged starting in 1994. In contrast, we show that a ratio adjusted to take care of two distorting developments -- retail sweep programs and overseas demand for U.S. currency -- did not surge, and that movements in the adjusted ratio owe primarily to the differential effects of interest rates on currency and checkable deposits. As a result, we are skeptical of monetary-based claims that the underground economy has expanded significantly in recent years and believe that any claims that is has must rely on other evidence.

Keywords: Money; Informal sector (Economics) (search for similar items in EconPapers)
Date: 1998
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Currency ratios and U.S. underground economic activity (1999)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:1998-41

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