A business-cycle-model with monopolistically-competitive Firms and Calvo wages: the case of Bulgaria after the introduction of the currency board (1999-2016) Cover Image

A business-cycle-model with monopolistically-competitive Firms and Calvo wages: the case of Bulgaria after the introduction of the currency board (1999-2016)
A business-cycle-model with monopolistically-competitive Firms and Calvo wages: the case of Bulgaria after the introduction of the currency board (1999-2016)

Author(s): Aleksandar Vasilev
Subject(s): Economy, National Economy, Micro-Economics
Published by: Софийски университет »Св. Климент Охридски«
Keywords: business cycles; monopolistic competition; rigid (Calvo) prices; rigid (Calvo) nominal wages

Summary/Abstract: We augment an otherwise standard business cycle model with a richer government sector, and add monopolistic competition in the product market, and rigid prices, as well as rigid wages a la Calvo (1983) in the labor market. This specification with the nominal wage rigidity, when calibrated to Bulgarian data after the introduction of the currency board (1999-2016), allows the framework to reproduce better observed variability and correlations among model variables, and those characterizing the labor market in particular. As nominal wage frictions are incorporated, the variables become more persistent, especially output, capital stock, investment and consumption, which helps the model match data better.

  • Issue Year: 2018
  • Issue No: 7
  • Page Range: 2-24
  • Page Count: 23
  • Language: English