THE ARMEY CURVE IN BULGARIA (2000-18) – THEORETICAL CONSIDERATIONS AND EMPIRICAL RESULTS

Aleksandar Vasilev

Theoretical and Practical Research in the Economic Fields, 2020, vol. 11, issue 1, 21-26

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.

Date: 2020
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Journal Article: The Armey Curve in Bulgaria (2000-18) – Theoretical Considerations and Empirical Results (2020)
Working Paper: The "Armey Curve" in Bulgaria (2000-18): Theoretical Considerations and Empirical Results (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:srs:jtpref:v:11:y:2020:i:1:p:21-26

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