A Business-cycle-model with Monopolistically-competitive Firms and Calvo Wages: The Case of Bulgaria after the Introduction of the Currency Board (1999-2016)
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
We augment an otherwise standard business cycle model with a richer government sector, and add monopolistic competition in the product market, and rigid prices, as well as rigid wages a la Calvo (1983) in the labor market. This specification with the nominal wage rigidity, when calibrated to Bulgarian data after the introduction of the currency board (1999-2016), allows the framework to reproduce better observed variability and correlations among model variables, and those characterizing the labor market in particular. As nominal wage frictions are incorporated, the variables become more persistent, especially output, capital stock, investment and consumption, which helps the model match data better.
Keywords: business cycles; monopolistic competition; rigid (Calvo) prices; rigid (Calvo) nominal wages (search for similar items in EconPapers)
JEL-codes: D43 D58 E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2018-07, Revised 2018-07
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Persistent link: https://EconPapers.repec.org/RePEc:sko:wpaper:bep-2018-07
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