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Are Habits Important for the Propagation of Business Cycle Fluctuations in Bulgaria?

Author

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  • Aleksandar Vasilev

    (Lincoln International Business School, UK)

Abstract
We introduce internal consumption habits into a real-business-cycle setup augmented with a detailed government sector. We calibrate the model to Bulgarian data for the period following the introduction of the currency board arrangement (1999-2016). We investigate the quantitative importance of the presence of internal consumption habits motive for the propagation cyclical uctuations in Bulgaria. Allowing for habits in consumption improves the model performance against data, and in addition this extended setup dominates the standard RBC model framework without habits, e.g., Vasilev (2009).

Suggested Citation

  • Aleksandar Vasilev, 2018. "Are Habits Important for the Propagation of Business Cycle Fluctuations in Bulgaria?," Bulgarian Economic Papers bep-2018-09, Faculty of Economics and Business Administration, Sofia University St Kliment Ohridski - Bulgaria // Center for Economic Theories and Policies at Sofia University St Kliment Ohridski, revised Sep 2018.
    • Handle: RePEc:sko:wpaper:bep-2018-09
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    References listed on IDEAS

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    1. José Luis Torres Chacon, 2015. "Introduction to Dynamic Macroeconomic General Equilibrium Models," Vernon Press Titles in Economics, Vernon Art and Science Inc, edition 2, number 54.
    2. Abel, Andrew B, 1990. "Asset Prices under Habit Formation and Catching Up with the Joneses," American Economic Review, American Economic Association, vol. 80(2), pages 38-42, May.
    3. Vasilev, Aleksandar, 2015. "Welfare gains from the adoption of proportional taxation in a general-equilibrium model with a grey economy: the case of Bulgaria's 2008 flat tax reform," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 48(2), pages 169-185.
    4. Aleksandar Vasilev, 2017. "VAT Evasion in Bulgaria: A General-Equilibrium Approach," Review of Economics and Institutions, Università di Perugia, vol. 8(2).
    5. Pablo Burriel & Jesús Fernández-Villaverde & Juan Rubio-Ramírez, 2010. "MEDEA: a DSGE model for the Spanish economy," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 1(1), pages 175-243, March.
    6. Aleksandar Vasilev, 2020. "Search and Matching Frictions and Business Cycle Fluctuations in Bulgaria," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 19(3), pages 319-340, December.
    7. Vasilev, Aleksandar, 2017. "Business Cycle Accounting: Bulgaria after the introduction of the currency board arrangement (1999-2014)," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 14(2), pages 197-219.
    8. John Y. Campbell & John Cochrane, 1999. "Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior," Journal of Political Economy, University of Chicago Press, vol. 107(2), pages 205-251, April.
    9. Lawrence J. Christiano & Michele Boldrin & Jonas D. M. Fisher, 2001. "Habit Persistence, Asset Returns, and the Business Cycle," American Economic Review, American Economic Association, vol. 91(1), pages 149-166, March.
    10. Aleksandar Zdravkov Vasilev, 2009. "Business cycles in Bulgaria and the Baltic countries: an RBC approach," International Journal of Computational Economics and Econometrics, Inderscience Enterprises Ltd, vol. 1(2), pages 148-170.
    11. Constantinides, George M, 1990. "Habit Formation: A Resolution of the Equity Premium Puzzle," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 519-543, June.
    12. Vasilev, Aleksandar, 2017. "A Real-Business-Cycle model with efficiency wages and a government sector: the case of Bulgaria," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, issue 4, pages 359-377.
    13. Vasilev, Aleksandar, 2015. "The welfare effect of flat income tax reform: the case of Bulgaria," EconStor Open Access Articles, ZBW - Leibniz Information Centre for Economics, pages 205-220.
    14. Baxter, Marianne & King, Robert G, 1993. "Fiscal Policy in General Equilibrium," American Economic Review, American Economic Association, vol. 83(3), pages 315-334, June.
    15. Aleksandar Vasilev, 2017. "A Real-Business-Cycle Model with Reciprocity in Labor Relations and Fiscal Policy: The Case of Bulgaria," Bulgarian Economic Papers bep-2017-03, Faculty of Economics and Business Administration, Sofia University St Kliment Ohridski - Bulgaria // Center for Economic Theories and Policies at Sofia University St Kliment Ohridski, revised Mar 2017.
    16. Deaton, Angus, 1992. "Understanding Consumption," OUP Catalogue, Oxford University Press, number 9780198288244.
    17. Aleksandar Vasilev, 2015. "Modeling Real Private Consumption Expenditure in Bulgaria after the Currency Board Implementation (1997-2005)," Zagreb International Review of Economics and Business, Faculty of Economics and Business, University of Zagreb, vol. 18(1), pages 81-89, May.
    18. Frank Smets & Raf Wouters, 2003. "An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area," Journal of the European Economic Association, MIT Press, vol. 1(5), pages 1123-1175, September.
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    Cited by:

    1. Aleksandar Vasilev, 2022. "A Real-Business-Cycle Model with Endogenous Discounting and a Government Sector," Notas Económicas, Faculty of Economics, University of Coimbra, issue 54, pages 73-86, July.

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    More about this item

    Keywords

    Business fluctuations; consumption habits; Bulgaria;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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