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A business-cycle model with a modified cash-in-advance feature, government sector and one-period nominal wage contracts: the case of Bulgaria

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  • Vasilev, Aleksandar

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 fluctuations. 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.

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  • Vasilev, Aleksandar, 2020. "A business-cycle model with a modified cash-in-advance feature, government sector and one-period nominal wage contracts: the case of Bulgaria," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 6(1(10)), pages 19-38.
    • Handle: RePEc:zbw:espost:229882
    DOI: 10.14505/jmef.v6.1(10).00
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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. Aleksandar Vasilev, 2017. "VAT Evasion in Bulgaria: A General-Equilibrium Approach," Review of Economics and Institutions, Università di Perugia, vol. 8(2).
    3. Gray, Jo Anna, 1976. "Wage indexation: A macroeconomic approach," Journal of Monetary Economics, Elsevier, vol. 2(2), pages 221-235, April.
    4. 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.
    5. 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.
    6. 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.
    7. Vasilev, Aleksandar, 2009. "Business cycles in Bulgaria and the Baltic countries: an RBC approach," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 1(2), pages 148-170.
    8. 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.
    9. Vasilev, Aleksandar, 2020. "Search and matching frictions and business cycle fluctuations in Bulgaria," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 19(3), pages 319-340.
    10. repec:nbr:nberre:0126 is not listed on IDEAS
    11. Vasilev, Aleksandar, 2017. "A Real-Business-Cycle model with reciprocity in labor relations and fiscal policy: the case of Bulgaria," EconStor Preprints 156164, ZBW - Leibniz Information Centre for Economics.
    12. 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.
    13. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
    14. 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.
    15. 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.
    16. 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.
    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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