Uncovering Unobserved Economy: A General Equilibrium Characterization

33 Pages Posted: 3 Apr 2015

See all articles by Amedeo Argentiero

Amedeo Argentiero

University of Rome Tor Vergata, Department of Economics; Institute for Studies and Economic Analyses (ISAE)

Carlo Andrea Bollino

University of Perugia

Date Written: May 2015

Abstract

This paper builds a three‐sector DSGE (Dynamic Stochastic General Equilibrium) model, considering explicitly the interactions among regular, underground and criminal sectors. We generated quarterly data for unobserved variables for Italian economy over the sample 1974:01–2011:02, through Monte Carlo simulations, and we found that underground economy is about 20 per cent of GDP, whereas criminal economy is 11 per cent. The dynamic behavior of the model shows that (1) regular production has a greater relative volatility with respect to unobserved production, (2) an efficient law enforcement activity is able to weaken unobserved activities and (3) unobserved sectors' variables exhibit a negative correlation with the corresponding ones of regular economy.

Suggested Citation

Argentiero, Amedeo and Bollino, Carlo Andrea, Uncovering Unobserved Economy: A General Equilibrium Characterization (May 2015). Metroeconomica, Vol. 66, Issue 2, pp. 306-338, 2015, Available at SSRN: https://ssrn.com/abstract=2589315 or http://dx.doi.org/10.1111/meca.12072

Amedeo Argentiero (Contact Author)

University of Rome Tor Vergata, Department of Economics ( email )

Rome, I-00133
Italy

HOME PAGE: http://www.amedeoargentiero.com

Institute for Studies and Economic Analyses (ISAE) ( email )

Piazza dell' Indipendenza 4
I-00185
Italy

HOME PAGE: http://www.amedeoargentiero.com

Carlo Andrea Bollino

University of Perugia

Via Pascoli 22
Perigoa, 06121
Italy

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