An RBC Model with Epstein-Zin (non-expected-utility) Recursive Preferences: Lessons from Bulgaria (1999-2018)
An RBC Model with Epstein-Zin (non-expected-utility) Recursive Preferences: Lessons from Bulgaria (1999-2018)

Summary/Abstract: We introduce Epstein-Zin (1989, 1991) preferences into a real-business-cycle setup aug- mented with a detailed government sector. We calibrate the model to Bulgarian data for the period following the introduction of the currency board arrangement (1999- 2018). We investigate the quantitative importance of the presence of ”early resolution of uncertainty” motive for the propagation of cyclical fluctuations in Bulgaria. Al- lowing for Epstein-Zin preferences improves the model performance against data, and in addition this extended setup dominates the standard RBC model framework, e.g., Vasilev (2009).

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