Underground economy and aggregate fluctuations
This paper explores the role of underground economic activities as an explanation of differences in registered aggregate fluctuations. In order to do so, we introduce an underground economy sector in an otherwise standard Real Business Cycle model and calibrate it to the USA economy. We find that, at low frequencies, Europe fluctuates more than the USA, while its participation rate is smaller. The existence of underground activities rationalizes the negative relationship between participation rates and fluctuations of registered output. Our model accounts for 44.3% of the differences in aggregate fluctuations between the USA and European economies. Finally, the model generates implied sizes of the underground economy of 3.2% and 7% of the American and European output, respectively, which are in the range of those found in the empirical literature.
Volume (Year): 3 (2001)
Issue (Month): 1 ()
|Contact details of provider:|| Postal: |
Phone: +34 94 6013783
Fax: + 34 94 6013774
Web page: http://link.springer.de/link/service/journals/10108/index.htm
More information through EDIRC
|Order Information:||Web: http://link.springer.de/orders.htm|
When requesting a correction, please mention this item's handle: RePEc:spr:specre:v:3:y:2001:i:1:p:41-53. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla)or (Christopher F Baum)
If references are entirely missing, you can add them using this form.