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Investigating the Impact of Unemployment Rate on the Romanian Shadow Economy. A Complex Approach Based on ARDL and SVAR Analysis

Listed author(s):
  • Adriana Anamaria Davidescu (Alexandru)

    ()

    (Department of Statistics and Econometrics, Academy of Economic Studies, Bucharest)

Registered author(s):

    The paper aims to investigate the potential impact of unemployment rates (both recorded and ILO) on the Romanian shadow economy (SE) for quarterly data covering the period 2000-2013, using ARDL cointegration method in conjunction with the structural VAR (SVAR) analysis in order to provide evidence for both the long and short-run dynamics between the variables. The size of the shadow economy as % of official GDP was estimated previously using a special case of the structural equation models - the MIMIC model, recording the value of 40% at the beginning of 2000 and following a downward trend over the analyzed period. The results of ARDL approach pointed out that there is no long-run relation between unemployment rates and the Romanian shadow economy. The relationship between the two variables is further tested by imposing a long-run restriction in the Structural VAR model to analyze the effect in the size of the Romanian shadow economy to a temporary shock in unemployment rates. The impulse response function generated by the Structural VAR confirms that in the short run, a rise in the recorded unemployment rate will lead to an increase in the size of the shadow economy, meanwhile an increase in the ILO unemployment rate highlighted a decrease in the size of the shadow economy.

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    File URL: http://www.ipe.ro/rjef/rjef4_14/rjef4_2014p109-127.pdf
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    Article provided by Institute for Economic Forecasting in its journal Romanian Journal for Economic Forecasting.

    Volume (Year): (2014)
    Issue (Month): 4 (December)
    Pages: 109-127

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    Handle: RePEc:rjr:romjef:v::y:2014:i:4:p:109-127
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