Estimating the size of Romanian subterranean economy using Gutmann's monetary approach

Alexandru, Adriana; Dobre, Ion
January 2010
5th International Conference on Applied Statistics;2010, p1
Conference Proceeding
Currency is widely assumed to have a comparative advantage over checks for the payment of purchases of goods and services that individuals wish to conceal from the authorities. A rise in currency stocks and payments may be taken as a rough indicator of the extent to which these transactions may not be reported to government authorities. The paper aims to estimate the size of subterranean economy using the simple currency ratio method of Gutmann for quarterly data covering the period 1999-2010. In order to do this, the study analyzes the ratio of currency to demand deposits in order to estimate the amount of economic activity in the subterranean economy. The empirical results point out that ratio of underground economy to official economy range between 40-50% of official GNP for the period 1999-2004. At the end of 2004, because of the sharp decline of currency in circulation, the size of the underground economy as percentage of official GNP reaches the value of 10%. In the first quarter of 2010, underground economy measures about 8% of official GNP, showing an increasing trend in recent quarters.


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