Dollarisation and the Underground Economy: Accidental Partners?

Abstract

Monetary methods of measuring the underground economy (UE) in all their variations are traditionally based upon domestic monetary aggregates. In recent times, however, there has been an increasing amount of evidence supporting the thesis that it is actually foreign currency that is very often linked with the UE in countries in which the phenomenon of dollarisation is widespread. New understanding of the extent and dynamics of dollarisation can, then, provide important information about the dynamics of the UE in these countries. Results derived from estimates of the amount of foreign cash in circulation in Croatia, in our estimation, show a rising tendency in the UE, like traditional monetary methods, which in principle does not have to be the case. Similar tendencies in the UE are indicated by the dynamics of electricity consumption.underground economy, dollarisation