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Are habits in consumption important for the propagation of business cycle fluctuations in Bulgaria?

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  • Vasilev, Aleksandar

Abstract

We introduce consumption habits into a real-business-cycle setup augmented with a detailed government sector. We calibrate the model to Bulgarian data for the period following the introduction of the currency board arrangement (1999-2018). We investigate the quantitative importance of the presence of internal consumption habits motive for the propagation cyclical fluctuations in Bulgaria. Allowing for internal habits in household's consumption improves the model performance against data, and in addition this extended setup dominates the standard RBC model framework without habits. Therefore, the computational experiments performed in this paper suggest that habits are a quantitatively important model ingredient, which should be taken into consideration when analyzing the effects of different policies in Bulgaria. In addition, we also demonstrate that internal habits are quantitatively more important than external habits for the Bulgarian business cycle.

Suggested Citation

  • Vasilev, Aleksandar, 2019. "Are habits in consumption important for the propagation of business cycle fluctuations in Bulgaria?," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 11(3), pages 133-151.
    • Handle: RePEc:zbw:espost:200502
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    Cited by:

    1. Vasilev, Aleksandar, 2020. "A business-cycle-model with monopolistically-competitive firms and Calvo wages: Lessons for Bulgaria (1999-2018)," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, issue Early Cit.

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    More about this item

    Keywords

    Business fluctuations; Bulgaria; internal consumption habits;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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