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A Real-Business-Cycle Model with Efficiency Wages and Fiscal Policy: The Case of Bulgaria

Aleksandar Vasilev

Bulgarian Economic Papers (www.bep.bg) from St Kliment Ohridski University of Sofia, Faculty of Economics and Business Administration / Center for Economic Theories and Policies

Abstract: In this paper we investigate the quantitative importance of efficiency wages in explaining uctuations in Bulgarian labor markets. This is done by augmenting an otherwise standard real business cycle model a la Long and Plosser (1983) with unobservable workers efort by employers and wage contracts as in Shapiro and Stiglitz (1984). This imperfection in labor markets introduces a strong propagation mechanism that allows the model to capture the business cycles in Bulgaria better than earlier models. The model performs well vis-a-vis data, especially along the labor market dimension, and in addition dominates the market-clearing labor market framework featured in the standard RBC model, e.g Vasilev (2009).

Keywords: general equilibrium; shirking; eciency wages; unemployment; Bulgaria (search for similar items in EconPapers)
JEL-codes: E24 E32 J41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-mac
Date: 2017-01, Revised 2017-01
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Working Paper: A Real-Business-Cycle model with efficiency wages and fiscal policy: the case of Bulgaria (2016) Downloads
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