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A monetary business-cycle model with an augmented cash-in-advance constraint, investment tax credit and a government sector: the case of Bulgaria (1999-2022)

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  • Vasilev, Aleksandar

Abstract

We modify an otherwise standard business cycle model with a richer government sector, and add an augmented cash-in-advance (CIA) considerations. In particular, the cash in advance constraint of Cole (2020) is extended to include private investment and government consumption, and allows a proportion of total expenditure to be done using credit. Additionally, we allow for the presence of an investment subsidy ("investment tax credit"). This specification is then calibrated to Bulgarian data after the introduction of the currency board (1999-2022), gives a role to money in accentuating economic fluctuations. In particular, the modified CIA constraint produces a mechanism that allows the framework to reproduce better observed variability and correlations among model variables, and those characterizing the labor market in particular.

Suggested Citation

  • Vasilev, Aleksandar, 2023. "A monetary business-cycle model with an augmented cash-in-advance constraint, investment tax credit and a government sector: the case of Bulgaria (1999-2022)," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 0(2(17)), pages 7-22.
    • Handle: RePEc:zbw:espost:283910
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    References listed on IDEAS

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    1. Vasilev, Aleksandar, 2017. "Business Cycle Accounting: Bulgaria after the introduction of the currency board arrangement (1999-2014)," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 14(2), pages 197-219.
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    More about this item

    Keywords

    business cycles; augmented cash-in-advance constraint;

    JEL classification:

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

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