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Can shocks to the discount factor explain business cycle fluctuations in Bulgaria (1999-2018)?

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  • Vasilev, Aleksandar

Abstract

A stochastic discount factor is introduced into a real-business-cycle setup with a government sector. The model is calibrated to Bulgarian data for the period 1999-2018, which is after the introduction of the currency board arrangement. The quantitative importance of shocks to the discount factor is investigated for the propagation of cyclical fluctuations in Bulgaria. In particular, allowing for a stochastic discount factor in the setup improves the model fit vis-a-vis data by increasing variability of employment and wages. However, those improvements are at the cost of increasing the volatility of consumption and investment.

Suggested Citation

  • Vasilev, Aleksandar, 2020. "Can shocks to the discount factor explain business cycle fluctuations in Bulgaria (1999-2018)?," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, issue Forthcomi.
    • Handle: RePEc:zbw:espost:223032
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    References listed on IDEAS

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    1. Aleksandar Vasilev, 2020. "A Real-business-cycle Model with a Stochastic Capital Share: Lessons for Bulgaria (1999–2018)," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 14(1), pages 107-121, February.
    2. Di Nola Alessandro & Kocharkov Georgi & Vasilev Aleksandar, 2019. "Envelope wages, hidden production and labor productivity," The B.E. Journal of Macroeconomics, De Gruyter, vol. 19(2), pages 1-30, June.
    3. Vasilev, Aleksandar, 2020. "Search and matching frictions and business cycle fluctuations in Bulgaria," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 19(3), pages 319-340.
    4. Aleksandar Vasilev, 2017. "A Real-Business-Cycle Model with Reciprocity in Labor Relations and Fiscal Policy: The Case of Bulgaria," Bulgarian Economic Papers bep-2017-03, Faculty of Economics and Business Administration, Sofia University St Kliment Ohridski - Bulgaria // Center for Economic Theories and Policies at Sofia University St Kliment Ohridski, revised Mar 2017.
    5. Parkin, Michael, 1988. "A method for determining whether parameters in aggregative models are structural," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 29(1), pages 215-252, January.
    6. Vasilev, Aleksandar, 2009. "Business cycles in Bulgaria and the Baltic countries: an RBC approach," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 1(2), pages 148-170.
    7. Vasilev, Aleksandar, 2017. "A Real-Business-Cycle model with efficiency wages and a government sector: the case of Bulgaria," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, issue 4, pages 359-377.
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