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

Vasilev, Aleksandar (2020) Can shocks to the discount factor explain business cycle fluctuations in Bulgaria (1999–2018)? National Accounting Review, 2 (3). pp. 285-296. ISSN 2689-3010

Full content URL: https://doi.org/10.3934/NAR.2020016

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Can shocks to the discount factor explain business cycle fluctuations in Bulgaria
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Abstract

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.

Keywords:business cycles; stochastic discount factor; Bulgaria
Subjects:L Social studies > L100 Economics
L Social studies > L130 Macroeconomics
Divisions:Lincoln International Business School
ID Code:42359
Deposited On:23 Sep 2020 10:46

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