Measuring the Business Cycle in Bulgaria
Measuring the Business Cycle in Bulgaria

Summary/Abstract: The aim of this paper is to estimate the phases of the business cycle in Bulgaria and its degree of synchronisation with the business cycle in the euro area. Applying a structural unobserved components model, consisting of an IS curve, Phillips curve, Okun’s law and a monetary policy response function, consistent with the functioning currency board arrangement in Bulgaria, we find that in the period 1999-2004 the Bulgarian economy was operating below its optimal production capacity. The peak of the economic cycle was reached in the middle of 2008, followed by a period of a decline, corresponding to the period of the global financial and economic crisis and a second downturn corresponding to the period of the European debt crisis. Since mid-2016, the Bulgarian economy has operated above potential and this phase continues up to Q3 2019. Another conclusion of our study is that the business cycle in Bulgaria is to a large extent synchronised with the business cycle in the euro area, with the degree of synchronisation increasing after the accession of Bulgaria to the European Union.

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