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A business-cycle model with cash- and credit goods and a modified cash-in-advance feature: lessons for Bulgaria (1999-2020)

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  • Vasilev, Aleksandar

Abstract

We augment the standard business cycle model with cash and credit goods a la Lucas and Stokey (1983, 1987), plus a modified cash-in-advance (CIA) considerations. In particular, the cash-in-advance constraint is extended to include private investment and government purchases. This specification is then calibrated to Bulgaria over the 1999-2020 period. The presence of cash and credit goods give a role to money in accentuating economic fluctuations. In particular, the two types of goods and the modified CIA constraint produce a more sophisticated propagation mechanism, with novel trade-offs faced by the household. The model generates too volatile consumption, and counter-cyclical investment, which are at serious odds with data. Overall, the model with cash and credit goods, and physical capital accumulation, does not provide a good framework to study business cycle fluctuations in Bulgaria.

Suggested Citation

  • Vasilev, Aleksandar, 2022. "A business-cycle model with cash- and credit goods and a modified cash-in-advance feature: lessons for Bulgaria (1999-2020)," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 26(1 (forthc), pages 1-13.
    • Handle: RePEc:zbw:espost:251944
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    References listed on IDEAS

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    More about this item

    Keywords

    business cycles; cash and credit goods; modified cash-in-advance (CIA) constraint; Bulgaria;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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