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A Business-cycle-model with a Modified Cash-in-advance Feature, Government Sector and Oneperiod Nominal Wage Contracts: The Case of Bulgaria

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  • Aleksandar Vasilev

    (Independent Researcher)

Abstract

We augment an otherwise standard business cycle model with a richer government sector, and add a modified cash in advance considerations, and one-period-ahead nominal wage contracts. In particular, the cash in advance constraint of Cooley and Hansen (1989) is extended to include private investment and government consumption. This specification, together with the nominal wage rigidity, when calibrated to Bulgarian data after the introduction of the currency board (1999-2016), gives a role to money in propagating economic uctuations. In addition, the combinations of these ingredients allows the framework to reproduce better observed variability and correlations among model variables, and those characterizing the labor market in particular.

Suggested Citation

  • Aleksandar Vasilev, 2018. "A Business-cycle-model with a Modified Cash-in-advance Feature, Government Sector and Oneperiod Nominal Wage Contracts: The Case of Bulgaria," Bulgarian Economic Papers bep-2018-08, 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 Aug 2018.
    • Handle: RePEc:sko:wpaper:bep-2018-08
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    References listed on IDEAS

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    1. Cho, Jang-Ok & Cooley, Thomas F, 1995. "The Business Cycle with Nominal Contracts," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 6(1), pages 13-33, June.
    2. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
    3. Aleksandar Vasilev, 2017. "VAT Evasion in Bulgaria: A General-Equilibrium Approach," Review of Economics and Institutions, Università di Perugia, vol. 8(2).
    4. Vasilev, Aleksandar, 2015. "The welfare effect of flat income tax reform: the case of Bulgaria," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 53(3), pages 205-220.
    5. Gray, Jo Anna, 1976. "Wage indexation: A macroeconomic approach," Journal of Monetary Economics, Elsevier, vol. 2(2), pages 221-235, April.
    6. Cooley, Thomas F & Hansen, Gary D, 1989. "The Inflation Tax in a Real Business Cycle Model," American Economic Review, American Economic Association, vol. 79(4), pages 733-748, September.
    7. Aleksandar Vasilev, 2020. "Search and Matching Frictions and Business Cycle Fluctuations in Bulgaria," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 19(3), pages 319-340, December.
    8. 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.
    9. Aleksandar Zdravkov Vasilev, 2009. "Business cycles in Bulgaria and the Baltic countries: an RBC approach," International Journal of Computational Economics and Econometrics, Inderscience Enterprises Ltd, vol. 1(2), pages 148-170.
    10. Vasilev, Aleksandar, 2015. "The welfare effect of at income tax reform: the case of Bulgaria. Technical Appendix," EconStor Research Reports 124168, ZBW - Leibniz Information Centre for Economics.
    11. Rotemberg, Julio J & Woodford, Michael, 1996. "Real-Business-Cycle Models and the Forecastable Movements in Output, Hours, and Consumption," American Economic Review, American Economic Association, vol. 86(1), pages 71-89, March.
    12. 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.
    13. 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.
    14. Jang-Ok Cho, 1993. "Money and Business Cycle with One-Period Nominal Contracts," Canadian Journal of Economics, Canadian Economics Association, vol. 26(3), pages 638-659, August.
    15. Fischer, Stanley, 1977. "Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 191-205, February.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    business cycles; modified cash-in-advance constraint; one-period nominal wage contracts;
    All these keywords.

    JEL classification:

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

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