The monetary method to measure the shadow economy: The forgotten problem of the initial conditions

Hildegart Ahumada (1) , Facundo Alvaredo (2, 3, 4, 5) , Alfredo Canavese (1, 5)

1 Universidad Torcuato Di Tella
2 CREST - Centre de Recherche en Économie et Statistique
3 PSE - Paris School of Economics
4 PJSE - Paris-Jourdan Sciences Economiques
5 CONICET - Consejo Nacional de Investigaciones Científicas y Técnicas [Buenos Aires]

We show that when the money demand function used to estimate the size of the shadow economy includes the lagged dependent variable, the need to assume a known initial condition reappears as it was the case in the early monetary methods.

Keywords: Underground economy; Informality; Monetary method

Domains: Humanities and Social Sciences; Economics and Finance

Hildegart Ahumada, Facundo Alvaredo, Alfredo Canavese. The monetary method to measure the shadow economy: The forgotten problem of the initial conditions. Economics Letters, 2008, 101 (2), pp.97-99. ⟨10.1016/j.econlet.2008.06.001⟩. ⟨hal-00812857⟩