Estimation of the Hidden Economy Using the Currency Demand : A Methodological Revision and an Application to 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)