The Armey Curve in Bulgaria (2000-18) – Theoretical Considerations and Empirical Results

Vasilev, Aleksandar (2020) The Armey Curve in Bulgaria (2000-18) – Theoretical Considerations and Empirical Results. Theoretical and Practical Research in Economic Fields, 11 (1). pp. 21-26. ISSN 2068-7710

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Abstract

In this paper we provide a theoretical basis for the so-called” Armey curve,” the inverted U-shape relationship between the level of government purchases and GDP growth, named after Armey (1995). We use an otherwise standard Keynesian model, augmented with a quadratic relationship between investment and lagged government expenditure, which was documented empirically. This modelling approach is a useful shortcut that aims to capture the common link shared by both variables, namely their dependence on the real interest rate, as suggested also by the extended static IS-LM model. This resulting dynamic relationship is a newly documented stylized fact, at least in Bulgarian data for the period 2000-2018, and the source in the extended Keynesian model that generates an Armey curve for Bulgaria.

Keywords:armey curve; GDP growth; government purchases; Bulgaria
Subjects:L Social studies > L120 Microeconomics
L Social studies > L130 Macroeconomics
Divisions:Lincoln International Business School
ID Code:43799
Deposited On:18 Feb 2021 12:42

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