Robert D. Laurent

English

Research Papers in Economics

C rr n    nd th 
  bt rr n  n    n   
  b rt      r nt
C rr n   h ld n   h v   l     f     
n t d th  p bl  .  h  f    n t  n     nl 
h   ht n d b  th  l     f h rd d t  th t   n 
f n    nv  t   t r  t    nj  t r   n  xpl  n n 
  rr n   h ld n  . Gr  th  n th  n  b r  f
 h    n       nt   nd th   xp nd n       f
   h   rr n     v n   n tr   nt      r d t
  rd  h v   ft n l d t  pr d  t  n   f  
"   hl         t ." Y t  l n    th th   r  th
 n  r d t   rd   nd  h    n       nt  th r 
h          l r    n r      n   rr n  
h ld n  .
C rr n    n   r  l t  n h    n r    d
n  rl     t      n th  p  t 40    r , b   t n 
p r   p t  h ld n   t  $  0. Ev n      l  b 
  rv t  n  nd   t   th t $2,000  n   rr n     
  r  th n   f   l   f f  r n  d  f r  rd n r 
tr n   t  n .
A  d  fr   th   n r    d      f  h    n 
     nt   nd  r d t   rd , th r   r   th r
r    n  f r  xp  t n  th       f   rr n   t 
d  l n .   ld n     lth  n th  f r   f
  rr n      r         t   n b  l  t  r  t l n. On
th   th r h nd,  xp r  n     th   d  pr  d
d p   t  n  r n    h    th t h ld n     lth
   d p   t     r l t v l  r    fr  . Al  ,   rr n 
   h ld n      r f     nt r  t r t rn ,  h  h,
  th th  r     n  nt r  t r t  , h v  b     
  n  d r bl .
On  p    bl   xpl n t  n f r th  r p d
 r  th h   l n  b  n r    n z d.  h t   
  rr n   h ld f r  ll   l p rp    .    h r t x
r t      ld      t   n r     th       f
  rr n   t   v  d t x  .  h r      l       
f  l n  th t   rt  n  nh r ntl   ll   l   t v t   
h v   xp nd d  r  tl , p rt   l rl  d  l n  
 n  ll   l dr   .  r n   t  n   f th     rt    ld
n      r l  b    d   n   rr n  .
S bt rr n  n    n      t   t 
  l  bl  d t   n   rr n          n  ll   l
  t v t     r ,  f    r  , h rd t   bt  n.  h  
 xpl  n  th    d  pr  d  tt nt  n   v n t   
r   nt   t   t   f   rr n          n  h t   
  ll d th  "  bt rr n  n    n   ." In th  
 nd r r  nd    n   ,   t v t     r    th r
 nh r ntl   ll   l  r n t r p rt d t   v  d t x 
  . In  n  rt  l   n th    n n   l An l  t     r 
n l (  v  b r      b r      ,   t r M.
G t  nn    d th  r t    f   rr n   t  d  
  nd d p   t  t    t   t  th      nt  f
   n       t v t   n th    bt rr n  n
   n   .      t   t d th t   t v t   n th 
  bt rr n  n    n        nt d t   t l   t
$  6 b ll  n  n    6.  h t     n  rl    t nth  f
th  r p rt d G  .
G t  nn    d th    rr n    t     nd
d   nd d p   t h ld n    n    tr   htf r  rd
    t    t   t  th     n t d   f  ll   l    
t v t . Ov r th  p r  d      t    4 , th  r t  
 f   rr n   t  d   nd d p   t      2 .  p r 
  nt.       6, th       r t   h d r   n t   4.4
p r  nt.
A     n  (   th t   d ll r  f   rr n    nd
  d ll r  f d   nd d p   t    pp rt th      
    nt  f    n       t v t  (l   l  nd  l 
l   l   t th       p  nt  n t   ,  nd (2  th t
th  r t    f   rr n   t  d   nd d p   t 
n  d d t    pp rt l   l   t v t    h d n t
 h n  d, h  f   r d th t  ll   l   t v t  h d
 n r    d   b t nt  ll . Ev n  f th r      n 
 ll   l   t v t   n th    rl  r p r  d,  ll   l
  t v t   n    6    ld     nt t  $  6 b ll  n.
 h r   r         p rt nt   pl   t  n 
 nv lv d  n th     t   t , h   v r. On     th 
  pl   t  n th t    n       t v t  (l   l  nd
  d r l     rv    n   f Ch     	   ll   l         t d   th   rr n   h    r  n
f  t r th n   t v t         t d   th d   nd
d p   t . An th r    th    pl   t  n th t  
d ll r  n   rr n    r d   nd d p   t    p 
p rt   b  t t           h G     t v t   n    6
    t d d  n th    rl  r p r  d.  h   f ll   
b       G    v r   d $ 8 b ll  n  n      4 
 nd   rr n   pl   d   nd d p   t  (M   
 v r   d $  .6 b ll  n. Ev r  d ll r  f M  ,
th r f r ,   pp rt d $2.   f G    n      4 
 nd $ .6  n    6. M  t   p rt nt, th    t   t 
d p nd   r t   ll   n th       f d   nd
d p   t     th  "  rd t   "    n t d      
p r d   th   rr n  .  h    h     d t r  n  
n t j  t th    t   t   f  r  th  n th    b 
t rr n  n    n   , b t  h th r th r     
 n   r  th  t  ll.   r  x  pl ,    p r   n  f
th  r t    f   rr n   t  t t l b n  d p   t 
 h      rr n   d  l n d r l t v  t  t t l b n 
d p   t  fr        thr   h    6. Ind  d,
 v r th  p r  d      thr   h    8,  f th  f v 
  n        r   ( ll  n l d n    rr n    th t
th    d r l     rv  r p rt ,   rr n   d  
 l n d      pr p rt  n  f  ll  x  pt M  .  h  
   p r    n       t  th t  h t      tr   n 
 b  t th   p r  d     th   l  n     f  r  th
 n d   nd d p   t . C rr n   d d n t  n 
 r     r l t v  t   th r d p   t      r  .
b f r   n  x h n     n b    d  f r    d 
 nd   rv    .  h     pl    th t   rr n    nd
d   nd d p   t   h  ld b    r   l   l 
r l t d t  G  .  h   p rf r  th  tr n f r 
       t d   th th  pr d  t  n  f    d   nd
  rv    .
 h   n l     th t l  d  t    f      n th 
b h v  r  f   rr n   r l t v  t  d   nd
d p   t        t  th t tr n f r   f   rr n  
 nd d   nd d p   t     ld b    r   n 
d   t v   f    n       t v t  th n th   t     f
  rr n    nd d   nd d p   t . A t v t 
  rr  d   t  n th  v   bl     n    r    r  
p    nt  f r l b r  nd   t r  l , pr b bl  b 
 h   . On    n   t v t       rr  d   t  t l   t
p rt  ll   n th    bt rr n  n    n   ,  v n
tr n   t  n  th t  r   n th  v   bl     n   ,
   h    p r h      f   t r  l ,     b  p  d
f r   th   rr n  .
It    ht      th t   ph   z n    rr n  
 nd d   nd d p   t tr n f r   n t  d  f th 
 t     f   rr n    nd d   nd d p   t    v  
l ttl  n    n   ht  nt   ll   l   t v t .   th n 
   ld b  f rth r fr   th  tr th.     r    r 
 v  l bl   n th  t rn v r  f d   nd
d p   t —th   v r    n  b r  f t      
d ll r  f d   nd d p   t  tr n f r   v r t   .
 h   v r    fr        thr   h   4      2 
t          r. In    6,  t
S     v d n   fr    t    
C rr n    t    (b ll  n d ll r  
    nd d p   t  t    (b ll  n d ll r  
C rr n   d   nd d p   t 
"Ex    "   rr n   d   nd d p   t 
  p rt d G   (b ll  n d ll r  
"Ex    "   rr n   ((M      " x    "   rr n   
G     tp t  f   bt rr n  n    n    (b ll  n d ll r  
...
     4 	    6
   	    	 t    .	    
  nd d p   t    t  d 
   	 Y r — 	   r   
6.0	   .8 th t	 r d    	 th 
2 .6	 226.2  ff  t 	  f	 p r l 	 f  
.2  	 . 44 n n   l tr n   t  n —
 8.	  6  .
	
.0	 . 2 
	
.0	 . 04
t rn d  v r  n  v r 
     f 20 t          r
0.	   6. fr  	     	 thr   h
I p rt n    f tr n f r 
 h r   r     p ll n  r    n  f r th n  
 n  M      th  b  t   n      n t d  t  r l t 
t  G  . C rr n    nd d   nd d p   t   r 
th   nl     p n nt   f  n    n        r 
th t   n b      d  t l  tr n f rr d f r    d 
 nd   rv    . Oth r d p   t     t f r t b 
tr n f rr d  nt    rr n    r d   nd d p   t 
  4 . In   6 , th  
t rn d  v r 80 t    .
On   f th     n r    n  f r th  f  t r d  
  nd d p   t t rn v r h   b  n th   ff  t  f
 n r    n   nt r  t r t  ,  h  h h v   n 
   r   d b tt r   n     nt  f    h
b l n   .   n    r  pr h b t d fr   p   n 
 xpl   t  nt r  t  n d   nd d p   t   nd r   
 n   nt r  t r t   h v   n r    d th  f r   n 
 n     r pr   nt d b  d   nd d p   t .
 h   l  d  th  d   nd d p   t h ld r t 
4	 E  n       r p  t v  ...  nd fr   tr n f r 
     4     6
C rr n    t    (b ll  n d ll r   6.0   .8
C rr n   t rn v r (p r    r     .   
C rr n   tr n f r  (b ll  n d ll r     r  6.0  4 .  
    nd d p   t  t    (b ll  n d ll r   2 .  226.2
    nd d p   t t rn v r (p r    r  20.    . 
    nd d p   t tr n f r  (b ll  n d ll r     r    4.2  80  .4
C rr n    t    d   nd d p   t  t    .2   . 44
C rr n   tr n f r  d   nd d p   t tr n f r  .0 08  .002  
 Wh r    r pr   nt    rr n   tr n f r  p r    r  n th  p r  d      4 .
   n   z   nd r d     dl  b l n   ,  n 
 r    n  th  t rn v r  f d   nd d p   t .
 h   n r      b  rv d  n t rn v r f rth r
r  nf r    th    rl  r  b  rv t  n th t d  
  nd d p   t  h v  b h v d v  tl  d ff r nt
   n  d p   t   n  r   n      l  l .
I p  t  f tr n f r 
 h   n r      n d   nd d p   t t rn v r
h     p rt nt   pl   t  n  f r   t   t    f
th    bt rr n  n    n   .   b t  t  d  
  nd d p   t   n r    d b    r  th n  0
t      v r th  p r  d fr  
     t     6.      ntr  t,
th    rr n    t     n 
 r    d  nl   2 t    .
Unl    th  t rn v r r t 
f r   rr n   h    l  
 n r    d   b t nt  ll ,
 r  th  n   rr n  
tr n f r  h     t  ll 
l    d  r  th  n d   nd
d p   t tr n f r   v r th  
p r  d.     nd d p   t
tr n f r  p t  n  nt r l 
d ff r nt p r p  t v   n
th   h n     n   rr n  
r l t v  t  d   nd d p   t .
M r  v r,  h t    nt  v d n     
 v  l bl        t  th t   rr n   t rn v r h  
  t  ll   l   d r th r th n  n r    d  v r th 
p  t 40    r . Alth   h th r     n  d r  t
 v d n    n   rr n   tr n f r ,   r   h  d  
 f th  v l   t   f   rr n   tr n f r    n b   n 
f rr d fr    b  rv n    rr n   r d    d
 nd d  tr   d. C rr n      r d    d  nd
d  tr   d  h n n t    h      n   f    r. If
  rr n   b         rn      r   lt  f
tr n f r , th n th  v l     f   rr n  
r d  pt  n   nd d  tr  t  n    n b     d   
 n  nd   t  n  f   rr n   tr n f r .
 h    nt rpr t t  n      pp rt d b 
 v d n    n d  tr  t  n  f d ff r nt
d n   n t  n . S  ll r d n   n t  n n t  
 r    r     t bl  f r    t tr n f r .   r  r
d n   n t  n n t    r    r     t bl  f r
 t r n     lth. It h   l n  b  n  b  rv d th t
d n   n t  n  nd   rr n   l f t    d  l n 
t   th r, pr     bl     tr n f r v l   t 
 n r     .
 r        thr   h   4 , th   v r    l f 
 f   d ll r  f   rr n        . 2    r . In    6,
 t  v r   d  .      r .  W th th       pt  n
th t th  n  b r  f tr n f r   n th  l f   f  
  rr n   n t  d d n t  h n  , th  d t   n 
d   t  th t   rr n    n    6 tr n f rr d  nl 
 b  t    p r  nt    f  t     n th    rl  r
p r  d.
        f th   h n     n tr n f r r t   f r
  rr n    nd d   nd d p   t   nd   th th 
     pt  n th t   rr n   tr n f r       nt d
f r th       pr p rt  n  f tr n   t  n      n
th    rl  r p r  d,  t    p    bl  t     p t 
 h t th  r t    f   rr n   t  d   nd d p   t 
   ld h v  b  n  n    6.  h  r   lt    th t
  rr n    n    6    ld h v  t  b   .4  t    
th  l v l  f d   nd d p   t .  h     b n  
t  n  f th   p  d p  n d   nd d p   t t rn 
 v r  nd th   l   n   n   rr n   t rn v r
   n  th t   rr n      ld h v  t  b  l r  r
th n d   nd d p   t   n    6 t  p rf r  th 
     pr p rt  n  f tr n f r  th t  t d d fr  
     thr   h   4 . I n f  t, th  r t    f   rr n 
   t  d   nd d p   t   n    6      nl  0. 4.
  h   n r      n   rr n   l f t        b  d  ,  n
p rt, t      n       d      n b  th    d r l     rv  t 
l n th n th  l f   f   n t  thr   h  h n     n  t    rr n 
   r d  pt  n p l     n th    d    0 .     v r,  x 
   n n  d t  fr   th    rl     0   nd   t   th r       
  b t nt  l  n r      n   rr n   l f t       d  fr   th 
 ff  t   f  n   h n     n   d r l     rv  r d  pt  n
p l   .
  d r l     rv    n   f Ch     	      tr nd 
Adj  t  nt f r t rn v r  h n    th   n 
t rpr t t  n  f th    rr n    t    n  b r 
   pl t l . In t  d  f     rr n    t    th t
      t   l r  , th   t    n    pp  r  f r t  
   ll t  p rf r   v n th       pr p rt  n  f
tr n f r      n      4 . Y t th    rr n    t   
 nd th  p r   p t  h ld n   h v  r   n  h rp 
l .  h   xpl n t  n  pp  r  t  l    n t   d   
t n t tr nd . On  tr nd d   ,  nd  d,      t 
b      v  t   rd      hl         t ,   th
  rr n   p rf r  n       ll r  nd    ll r
pr p rt  n  f tr n f r   n th     n   . Ap 
p r ntl , th   r  th  n th       f  h    n 
     nt   nd  r d t   rd       b t t t n  f r
  rr n   tr n f r .
A     nd tr nd h   b  n    r   n       f
  rr n         t r   f v l  ,   th    h l   r
t rn v r r t  .  h  r p d  n r      n $ 00
n t  ,  nt l th r     n     r    n     t 
 t nd n   n th   d n   n t  n th n  n   th r,
   ld r fl  t th   n r    d      f   rr n     
   t r   f v l  . Ev n l r  r d n   n t  n 
   ht b     d  f th     r   t ll      d.  h  
tr nd  n l r   d n   n t  n n t      ld      
l  b    nn  t d   th  ll   l   t v t , b t th   
n t   d  n t h v  th       r l t  n h p t 
   n       t v t      n th  v   bl     n   .
Wh   ll   l   t v t     ht  n r     th 
 t     f   rr n    h l  r d   n  th  t rn v r
r t    n b     n  n      p r   n  f th 
pr bl   f   n       ll t x  v d r   th th 
pr bl   f   n    l r   t x  v d r.  h     ll
t x  v d r  v d   th  t x  n   r l t v l     ll
p rt  f h    n    . A  h   b     t r       th t
th   nr p rt d  n       ll b  d t  t d, th 
   ll  v d r          rr n   tr n   t  n t 
r    v  th   n      n       th t   nn t b 
d t  t d.   v n  r    v d th    rr n  , th 
   ll  v d r h   n  pr bl   d  p   n   f  t,
  n    t         ll     nt r l t v  t  h    n 
    .  h     ll  v d r     ff  t d b  th 
     f  t r  th t l  d th  h ld r  f l   ll   b 
t  n d   rr n   t     n   z   n h     rr n 
   h ld n  —th   nt r  t r t rn th t    t b 
f r   n  t  h ld   rr n    nd th  d  
pr    t n  v l    f th  d ll r.
 h  l r   t x  v d r     b  r    r d t 
h ld    h l r  r     nt   f   rr n   th t
tr n f r    h  l   r.   t    th t   th  
  rr n   p r   p t  f   r   f $  0,      l
 b  rv t  n       t  th t   rr n   h ld n  
 r   h rpl       d   th      h ld r  h v n 
v r  l r       nt .   r   t x  v d r  h v 
th  r v r   pr bl    f    ll  v d r . S n    
 r  t p rt  r  ll  f th  r  n        h dd n fr  
th  t x   ll  t r,  t    l   l  th t th  p    nt 
 r   lr  d   rr n  d  n   rr n  .     v r,
th r       d n  r  n tr n f rr n   t  nt  v   bl 
    t .     bl      t    b t nt  ll   r  t r th n
pr v    l  r p rt d  n        ld  r    
   p    n. If th   n          fr    n   t v t 
th t      t  lf  ll   l, th    rr n   h ld r
   ht  v n p r h      l   t   t  b   n   
 nd "l  nd r" th   ll   l  n     b  p  p n 
 t thr   h th  b   n     nd p   n  t x    n  t.
 h      ht  xpl  n th  r p t d  ttr  t  n f r
l r      l   r  n z d  r     f    h   rr n  
 nt n  v  b   n         l   l z d    bl n ,
 h r  l r       nt   f   rr n      ld b 
r   rf   d.
On  p      f   pp rt n   v d n   f r th 
d ff   lt   f  l   n t n    rr n   h  rd 
      fr   th  p r  d j  t  ft r th  S   nd
W rld W r. C rr n    n r    d r p dl  d r 
 n  th    r.  h   pr     bl  r fl  t d  n  n 
 r      n  ll   l   t v t   , h  rd n        t r 
 f v l  ,  nd  n r    d f r   n h ld n  .
C rr n   d  l n d  ft r th    r.  h  d  l n 
     l    nd pr tr  t d, h   v r,    th   h
  rr n   h  rd     ld n t b  d    r  d
     l .   r   p t    rr n   h ld n     t  ll 
d  l n d f r       r —fr     46 t    6 .
 h   v d n   pr   nt d h r  d    n t
d n  th  p    b l t  th t  ll   l   t v t    h v 
b  n  r   n . Ind  d,  n r    n  t x r t  
   ld      t   n r     th   n  nt v  f r    h
  t v t   .   r d    th   v d n   d n  th t  
 r  t p rt  f th   n r      n   rr n       b 
d   t   ll   l   t v t   .  h   n l      f d  
  nd d p   t  nd   rr n   tr n f r  d   
      t, h   v r, th t th  pr p rt  n  f t t l
   n       t v t         t d   th   rr n  
h   d  l n d   b t nt  ll   v r th  p  t 40
   r .  h  ,  t        nl   l  th t th 
  bt rr n  n    n       ld pr   ntl 
     nt f r   t nth  f r p rt d G  .
6	 E  n       r p  t v  

Currency and the subterranean economy

http://www.chicagofed.org/digital_assets/publications/economic_perspectives/1979/ep_mar_apr1979_part1_laurent.pdf

Currency and the subterranean economy

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Research Papers in Economics