Graduation Year
2017
Date of Submission
4-2017
Document Type
Open Access Senior Thesis
Degree Name
Bachelor of Arts
Department
Economics
Reader 1
Eric Helland
Reader 2
Richard Burdekin
Rights Information
© 2017 Sanjana Sankaran
Abstract
Demonetization is an economic tool used to reduce the size of an underground economy. Though studies on the effectiveness of demonetization have increased over the past 50 years, there is little literature on the ineffectiveness of demonetization and subsequent factors that could explain a lack of change, or an increase, in illegal activity. This paper examines past cases of demonetization to determine the effectiveness of demonetization, and investigates the incentive for foreign currency substitution as a mechanism for criminals to circumvent regulatory scrutiny. Major findings of this paper include a positive but statistically insignificant correlation between demonetization and growth in the shadow economy, and a statistically significant positive relationship between exchange rate appreciation and demonetization. Finally, this paper applies these findings to test the “Modi effect” of Indian Rupee (INR) demonetization.
Recommended Citation
Sankaran, Sanjana, "The “Modi Effect”: Investigating the Effect of Demonetization on Currency Demand and the Size of the Underground Economy in India" (2017). CMC Senior Theses. 1647.
https://scholarship.claremont.edu/cmc_theses/1647
