Informal sector changes inflation dynamics – BIS paper

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The informal economy has a mixed impact on inflation outcomes, research published by the Bank for International Settlements finds.

Enrique Alberola-Ila and Carlos Urrutia examine how informal labour markets – operating outside the tax, regulatory and financial systems – affect inflation outcomes. Despite the large informal sectors in many emerging markets, the issue has been little examined in the past, they say.

They use a dynamic stochastic general equilibrium model, into which they

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