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Money Multiplier Bias Due to Informal Sector: An Extension of the Existing Money Multiplier
South Asian Journal of Macroeconomics and Public Finance ( IF 0.6 ) Pub Date : 2021-01-13 , DOI: 10.1177/2277978720979888
Khurrum S. Mughal 1, 2 , Friedrich G. Schneider 3 , Faheem Aslam 4 , Alishba Tahir 4
Affiliation  

To demonstrate the impact of informal economy on the official money multiplier in currency supply, we present an extension of the basic money multiplier model. The influence of economic policies may differ if they are based only on official statistics without considering the informal sector. Since most of the activities in informal sector are hidden from authorities, it is widely assumed that these activities are based on cash transactions, a part of total currency that cannot be attracted towards deposits due to the holder’s fear of prosecution and taxation, etc. Therefore, it is expected that such currency holdings can give biased results by playing a role in the money multiplier, a phenomenon that is usually ignored while attempting to alter money supply. The article also indicates that because of informal sector, the currency deposit ratio in the money multiplier is smaller than expected (depending on size of the informal sector), leading to a larger multiplier effect.

JEL Codes: E26, E51, O17



中文翻译:

非正式部门造成的货币乘数偏差:现有货币乘数的扩展

为了证明非正规经济对货币供应中官方货币乘数的影响,我们提出了基本货币乘数模型的扩展。如果仅基于官方统计数据而不考虑非正规部门,则经济政策的影响可能会有所不同。由于非正式部门中的大多数活动是对当局隐瞒的,因此人们普遍认为这些活动是基于现金交易的,由于持有人担心起诉和征税等原因,现金的一部分无法吸引到存款中。因此, ,预计这种货币持有量会通过在货币乘数中发挥作用而产生有偏差的结果,这种现象在试图改变货币供应量时通常会被忽略。该文章还指出,由于非正规部门,

JEL代码: E26,E51,O17

更新日期:2021-03-15
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