Feige, Edgar L. (1989): Currency Velocity and cash payments in the U.S. Economy: The Currency Enigma.
Download (17MB) | Preview
This paper develops a demographic model of the currency population by examining the birth and death rates of specific denominations of currency. This framework permits empirical estimation of the average lifetime of notes in circulation and hence the currency velocity (turnovers per year) of each denomination. The velocity of currency times the stock of currency produces estimates of the annual volume of cash payments. Since the volume of check payments (debits to checkable accounts) is regularly recorded, our estimates of cash payments can be used to estimate the total volume of transactions (MV) from the payment side of Fisher’s equation of exchange. The paper goes on to examine the “currency enigma” from the perspective of both “missing currency” and “missing payments”. The estimated volume of cash payments is so high when compared to personal consumption expenditures, that one is led to the conclusion that a large fraction of the US currency supply is held abroad, and that there is a sizable underground (unreported and perhaps unrecorded) economy in the United States.
|Item Type:||MPRA Paper|
|Original Title:||Currency Velocity and cash payments in the U.S. Economy: The Currency Enigma|
|Keywords:||Currency; Currency Velocity; Cash payments; transactions; Underground economy; Currency turnover; Counterfeit currency; Currency enigma;|
|Subjects:||E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E51 - Money Supply; Credit; Money Multipliers
O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O17 - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
E - Macroeconomics and Monetary Economics > E2 - Macroeconomics: Consumption, Saving, Production, Employment, and Investment > E26 - Informal Economy; Underground Economy
E - Macroeconomics and Monetary Economics > E0 - General > E01 - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
J - Labor and Demographic Economics > J1 - Demographic Economics > J11 - Demographic Trends, Macroeconomic Effects, and Forecasts
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E41 - Demand for Money
H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H26 - Tax Evasion
|Depositing User:||Edgar L. Feige|
|Date Deposited:||06. Mar 2009 16:24|
|Last Modified:||19. Feb 2013 10:03|
Avery, Robert B. et. al. "The Use of Cash and Transaction Accounts by American Families", Federal Reserve Bulletin, February, 1986.
Avery, Robert B. et al. "Changes in the Use of Transaction Accounts and Cash from 1984 to 1986" Federal Reserve Bulletin, March, 1987.
Boeschoten, W.C. and Fase, M. M. G. Betalingsverkeer en officieuze economie in Nederland 1965 1982 Monetaire Monografieen Nr.1, De Nederlandsche Bank n.v. 1984.
Bureau of Economic Analysis, "Revised Estimates of the National Income and Product Accounts of the United States, 1929-85: An Introduction" Survey of Current Business, Vol. 65, Number 12 December, 1985.
Cramer, J.S. "The Regular and Irregular Circulation of Money in the United States" A & E Report #11/80, University of Amsterdam. 1980 pp. 225-32.
Cramer, J. S. "The Volume of Transactions and the Circulation of Money in the United States", 1950 -1979, Journal of Business and Economic Statistics, April 1986, 2,
Corrado, Carol and Paul Spindt "T vs. Q: The Measurement and Analysis of Monetary Transactions" Mimeo, December, 1988
Dotsey, Michael "The Demand for Currency in the United States", Journal of Money Credit and Banking Vol. 20 No 1 (February 1988) pp. 22 - 40.
Feige, Edgar L. "How Big is the Irregular Economy?" Challenge 22 Nov./Dec. 1979 pp. 5 13.
Feige, Edgar L. The Swedish Payments System and the Underground Economy Industrial Institute for Economic and Social Research, Stockholm, 1985.
Feige, Edgar L. "A Re-Examination of the Underground Economy in the United States" IMF Staff Papers Vol.33 No. 4 (December 1986)
Feige, Edgar L. "An Analysis of Internal Revenue Service Estimates of Unreported Income" University of Wisconsin-Madison. 1987.
Feige, Edgar L. (ed.) The Underground Economies: Tax Evasion and Information Distortion, Cambridge University Press, 1989.
Feige, Edgar L. "Taxing All Transactions: The Automated Payment Transaction Tax System", Presented at the International Institute of Public Finance, Buenos Aires, August, 1989.
Fisher, I. The Purchasing Power of Money Macmillan, 1911.
Fisher, I. "A New Method of Estimating the Velocity of Circulation of Money". Journal of the Royal Statistical Society, Vol. 72, 1909.
Friedman, M. "The Quantity Theory of Money A Restatement" Studies in the Quantity Theory of Money The University of Chicago Press, 1956.
Internal Revenue Service, Income Tax Compliance Research Department of the Treasury, July, 1983.
Keynes, J. M. A Treatise on Money Macmillan, 1930.
Keynes, J. M. The General Theory of Employment, Interest, and Money Macmillan, 1936.
Laurent, R. Currency Transfers by Denomination Ph. D Thesis, University of Chicago 1970.
Selden, R. "Monetary Velocity in the United States" in Friedman, M ed. Studies in the Quantity Theory of Money University of Chicago Press, 1956.
Smith, James D. "Wealth in America" ISR Newsletter, Winter 1986-87
Spindt, Paul, A. "Money is What Money Does: Monetary Aggregation and the Equation of Exchange." J.P.E. 93 (February, 1985): 175-204.