Estimaci 3n del Tama ±o de la Econom -a Oculta por Medio de la Demanda de Circulante: Una Revisi 3n de la Metodolog -a con una Ilustraci 3n para Argentina

The “monetary method” to measure the size of the shadow economy is based on econometric estimates of the demand for currency. These estimates are used to reckon the currency held by economic agents in excess of the amount they need to finance registered transactions. This excess of currency multiplied by the income-velocity of circulation (assumed to be equal in the registered and the shadow economies) allows measuring unregistered GDP (the size of the shadow economy). This paper shows that the “monetary method” only produces appropriate estimates of the size of the shadow economy if the income-elasticity of the demand for currency is one. This result is applied, as an illustration, to an existent measurement of the size of the shadow economy in Argentina for the period 1930-1983.