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The Armey Curve In Bulgaria (2000-18) – Theoretical Considerations And Empirical Results

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  • Aleksandar VASILEV

    (University of Lincoln, UK)

Abstract

In this paper we provide a theoretical basis for the so-called” Armey curve,” the inverted U-shape relationship between the level of government purchases and GDP growth, named after Armey (1995). We use an otherwise standard Keynesian model, augmented with a quadratic relationship between investment and lagged government expenditure, which was documented empirically. This modelling approach is a useful shortcut that aims to capture the common link shared by both variables, namely their dependence on the real interest rate, as suggested also by the extended static IS-LM model. This resulting dynamic relationship is a newly documented stylized fact, at least in Bulgarian data for the period 2000-2018, and the source in the extended Keynesian model that generates an Armey curve for Bulgaria.

Suggested Citation

  • Aleksandar VASILEV, 2020. "The Armey Curve In Bulgaria (2000-18) – Theoretical Considerations And Empirical Results," Theoretical and Practical Research in the Economic Fields, ASERS Publishing, vol. 11(1), pages 21-26.
    • Handle: RePEc:srs:jtpref:v:11:y:2020:i:1:p:21-26
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    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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