Research article Special Issues

Can shocks to the discount factor explain business cycle fluctuations in Bulgaria (1999–2018)?

  • Received: 24 July 2020 Accepted: 21 August 2020 Published: 25 August 2020
  • JEL Codes: E24, E32

  • A stochastic discount factor is introduced into a real-business-cycle setup with a government sector. The model is calibrated to Bulgarian data for the period 1999–2018, which is after the introduction of the currency board arrangement. The quantitative importance of shocks to the discount factor is investigated for the propagation of cyclical fluctuations in Bulgaria. In particular, allowing for a stochastic discount factor in the setup improves the model fit vis-a-vis data by increasing variability of employment and wages. However, those improvements are at the cost of increasing the volatility of consumption and investment.

    Citation: Aleksandar Vasilev. Can shocks to the discount factor explain business cycle fluctuations in Bulgaria (1999–2018)?[J]. National Accounting Review, 2020, 2(3): 285-296. doi: 10.3934/NAR.2020016

    Related Papers:

  • A stochastic discount factor is introduced into a real-business-cycle setup with a government sector. The model is calibrated to Bulgarian data for the period 1999–2018, which is after the introduction of the currency board arrangement. The quantitative importance of shocks to the discount factor is investigated for the propagation of cyclical fluctuations in Bulgaria. In particular, allowing for a stochastic discount factor in the setup improves the model fit vis-a-vis data by increasing variability of employment and wages. However, those improvements are at the cost of increasing the volatility of consumption and investment.


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    [10] Vasilev A (2019a) How important are consumer confidence shocks for the propagation of business cycles in Bulgaria? LEAF Working Papers, Lincoln, UK: University of Lincoln.
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    [12] Vasilev A (2017a) Business Cycle Accounting: Bulgaria after the introduction of the currency board arrangement (1999-2014). Eur J Comp Econ 14: 197-219.
    [13] Vasilev A (2017b) A Real-Business-Cycle model with efficiency wages and a government sector: the case of Bulgaria. Cent Eur J Econ Econometrics 9: 359-377.
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    [16] Vasilev A (2017e) Progressive taxation and (in) stability in an exogenous growth model with an informal sector. J Econ Econometrics 60: 1-13.
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    [18] Vasilev A (2016b) Search and matching frictions and business cycle fluctuations in Bulgaria. Bulg Econ Pap 3: 2-41.
    [19] Vasilev A (2015a) Welfare effects of flat income tax reform: the case of Bulgaria. East Eur Econ 53:205-220.
    [20] Vasilev A (2015b) Welfare gains from the adoption of proportional taxation in a general-equilibrium model with a grey economy: the case of Bulgaria's 2008 flat tax reform. Econ Change Restructuring 48: 169-185.
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