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Response to "Comment on Measuring the Size of the Shadow Economy Using a Dynamic General Equilibrium Model with Trends"

Author

Listed:
  • Mario Solis-Garcia
  • Yingtong Xie

Abstract

It has been brought to our attention that the method proposed by our paper (Solis-Garcia and Xie 2018) fails to accomplish its goal. While we regret the mathematical error in our original calculation, we show that the claim made by Manuel Gómez and Adrián Ríos-Blanco (2022) of our method not serving its purpose is unfounded. We revisit our procedure, retaining the same DGE model and approach found in the 2018 paper, but using only a subset of the equilibrium conditions to pin down the dynamics of the informal sector. Our revised method generates a non-constant shadow-to-formal output ratio, and our results are consistent with alternative measures of the shadow economy. Thus, the findings from our 2018 paper—where our method offers the ability to generate time series over arbitrary time horizons—are nonetheless preserved in this updated approach.

Suggested Citation

  • Mario Solis-Garcia & Yingtong Xie, 2022. "Response to "Comment on Measuring the Size of the Shadow Economy Using a Dynamic General Equilibrium Model with Trends"," Econ Journal Watch, Econ Journal Watch, vol. 19(1), pages 133–141-1, March.
    • Handle: RePEc:ejw:journl:v:19:y:2022:i:1:p:133-141
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    References listed on IDEAS

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    1. Solis-Garcia, Mario & Xie, Yingtong, 2018. "Measuring the size of the shadow economy using a dynamic general equilibrium model with trends," Journal of Macroeconomics, Elsevier, vol. 56(C), pages 258-275.
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    Cited by:

    1. Marshall, Emily C. & Saunoris, James & Solis-Garcia, Mario & Do, Trang, 2023. "Measuring the size and dynamics of U.S. state-level shadow economies using a dynamic general equilibrium model with trends," Journal of Macroeconomics, Elsevier, vol. 75(C).

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    More about this item

    Keywords

    Shadow economy; business cycles; DSGE models;
    All these keywords.

    JEL classification:

    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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