Cash in Circulation and the Shadow Economy: An Empirical Investigation for Euro Area Countries and Beyond

20 Pages Posted: 28 Aug 2018

See all articles by Franz Seitz

Franz Seitz

Technical University of Applied Sciences Weiden

Hans-Eggert Reimers

Hochschule Wismar

Friedrich Schneider

Johannes Kepler University Linz - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Institute for the Study of Labor (IZA)

Date Written: July 09, 2018

Abstract

We analyze the net issues of the national euro area central banks in relation to the dynamics of the shadow economy within a panel cointegration framework. Besides the total net issues, we distinguish between large, medium and small euro banknotes and take due account of other determinants of cash demand. We find a significant and positive relationship between the net issues and the size of the shadow economy only for medium notes. And this result seems to be driven by the smaller euro area countries. The use of large and small denominations is obviously not driven by the shadow economy. For comparison purposes, we also present panel results for eight non-euro area countries (Australia, Canada, Japan, Norway, Sweden, Switzerland, UK, US). For these countries, we are not able to establish an economically meaningful and statistically significant cash demand equation including the shadow economy.

Keywords: banknotes, net issues, shadow economy, cash demand function, panel cointegration

JEL Classification: C230, E410, E580

Suggested Citation

Seitz, Franz and Reimers, Hans-Eggert and Schneider, Friedrich G., Cash in Circulation and the Shadow Economy: An Empirical Investigation for Euro Area Countries and Beyond (July 09, 2018). CESifo Working Paper Series No. 7143, Available at SSRN: https://ssrn.com/abstract=3237322

Franz Seitz

Technical University of Applied Sciences Weiden ( email )

Hetzenrichter Weg 15
D-92637 Weiden i.d. Opf
Germany
(49) 961-382-1318 (Fax)

Hans-Eggert Reimers

Hochschule Wismar ( email )

FB Wirtschaft
Philipp-Mueller-Str. PF 1210
23952 Wismar
Germany
49-3841-753-601 (Phone)
49-3841-753-383 (Fax)

Friedrich G. Schneider (Contact Author)

Johannes Kepler University Linz - Department of Economics ( email )

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Austria
+43 732 2468 8210 (Phone)
+43 732 2468 8208 (Fax)

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

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Munich, DE-81679
Germany

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Institute for the Study of Labor (IZA)

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