Abstract

Purpose: We introduce non-Ricardian ("hand-to-mouth") myopic agents into an other-
wise standard real-business-cycle (RBC) setup augmented with a detailed government
sector.We investigate the quantitative importance of the presence of non-optimizing
households for cyclical fluctuations in Bulgaria.
Design Methodology/approach: We calibrate the RBC model to Bulgarian data for
the period following the introduction of the currency board arrangement (1999-2018).
Findings: We find that the inclusion of such non-Ricardian households improves model
performance along several dimensions and generally provides a better match vis-a-vis
data, as compared to the standard model populated with Ricardian agents only.
Originality/value: This is a novel finding in the macroeconomic studies on Bulgaria
using modern quantitative methods.