Revisiting the Size of Romanian Informal Economy Using the Gutmann Approach

AbstractSince transactions between participants in unofficial sector(achived using currency) are undectable it is difficult to obtain a estimation of this sector. The currency is regarded as a superior medium of exchange for conducting underground transactions.The paper aims to estimate the size of informal economy using Gutmann approach for quarterly data covering the period 2000-2014. Thus, the study analyzes the ratio of currency to overnight deposits in order to estimate the amount of informal sector. The main idea behind this approach is that a rise in currency stocks and payments is likely a good indicator of transactions which are not reported to the government authorities.The method requires the choice of a base period where the ratio of currency in circulation to overnight deposits is minimum, and the empirical results are fairly sensitive to the choice.The empirical results pointed out that the ratio of underground economy to official economy reaches the value of 19% at the beginning of 2000 and follows a decreasing trend during the period 2000-2008.From the end of 2008, it begins to increase gradually reaching to about 13% of official GDP in first quarter of 2014