The role of endogenous capital depreciation rate for business cycle dynamics: lessons from Bulgaria (1999-2018)
Abstract
We allow for an endogenous depreciation rate of physical capital stock into a real-business-cycle model with a government sector. We calibrate the model to Bulgarian data for the period following the introduction of the currency board arrangement (1999-2018). We investigate the quantitative importance of the endogenous depreciation rate, and indirectly, the capital utilization mechanism for cyclical fluctuations in Bulgaria. Allowing for endogenous variations in the depreciation rate of capital improves the model performance against data, and in addition this extended setup dominates the standard RBC model framework with constant depreciation and a fixed utilization rate of physical capital, and a fixed depreciation rate e.g., Vasilev (2009).
References
[2]. Greenwood, J., Hercowitz, Z. and Huffman, G. (1988). "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review 78: 402-17.
[3]. Hodrick, R.J. and E.C. Prescott (1980) "Post-war US business cycles: An empirical investigation." Unpublished manuscript (Carnegie-Mellon University, Pittsburgh, PA).
[4]. Kydland, F, and Prescott, E. (1988). "The Workweek of Capital and Its Cyclical Implications," Journal of Monetary Economics 21: 343-60.
[5]. National Statistical Institute (2019) Aggregate Statistical Indicators. Available on-line at www.nsi.bg. Accessed on July 21, 2019.
[6]. Vasilev, A. (2018). "The Role of Energy in a Real Business Cycle Model with an Endogenous Capital Utilization Rate in a Government Sector: Lessons from Bulgaria (1999-2016)," Central European Economic Journal 5(1): 130-141.
[7]. Vasilev, A. (2017a). "Business Cycle Accounting: Bulgaria after the introduction of the currency board arrangement (1999-2014), European Journal of Comparative Economics, 14(2): 197-219.
[8]. Vasilev, A. (2017b). "A Real-Business-Cycle model with efficiency wages and a government sector: the case of Bulgaria," Central European Journal of Economics and Econometrics, 9(4): 359-377.
[9]. Vasilev, A. (2017c). "A Real-Business-Cycle model with reciprocity in labor relations and fiscal policy: the case of Bulgaria," Bulgarian Economic Papers BEP 03-2017, Center for Economic Theories and Policies, Sofia University St. Kliment Ohridski, Faculty of Economics and Business Administration, Sofia, Bulgaria.
[10]. Vasilev, A. (2017d). "VAT Evasion in Bulgaria: A General-Equilibrium Approach," Review of Economics and Institutions, 8(2): 2-17.
[11]. Vasilev, A. (2016). "Search and matching frictions and business cycle fluctuations in Bulgaria," Bulgarian Economic Papers BEP 03-2016, Center for Economic Theories and Policies, Sofia University St. Kliment Ohridski, Faculty of Economics and Business Administration, Sofia, Bulgaria.
[12]. Vasilev, A. (2015a). "Welfare effects of at income tax reform: the case of Bulgaria," Eastern European Economics 53(2): 205-220.
[13]. Vasilev, A. (2015b). "Welfare gains from the adoption of proportional taxation in a general-equilibrium model with a grey economy: the case of Bulgaria's 2008 at tax reform," Economic Change and Restructuring, 48(2): 169-185.
[14]. Vasilev, A. (2015c). "Macroeconomic Effects of Public-Sector Unions," LABOUR 29(2): 101-126.
[15]. Vasilev, A. (2009). "Business cycles in Bulgaria and the Baltic countries: an RBC approach," International Journal of Computational Economics and Econometrics, 1(2): 148-170.
The Copyright Transfer Form to ASERS Publishing (The Publisher)
This form refers to the manuscript, which an author(s) was accepted for publication and was signed by all the authors.
The undersigned Author(s) of the above-mentioned Paper here transfer any and all copyright-rights in and to The Paper to The Publisher. The Author(s) warrants that The Paper is based on their original work and that the undersigned has the power and authority to make and execute this assignment. It is the author's responsibility to obtain written permission to quote material that has been previously published in any form. The Publisher recognizes the retained rights noted below and grants to the above authors and employers for whom the work performed royalty-free permission to reuse their materials below. Authors may reuse all or portions of the above Paper in other works, excepting the publication of the paper in the same form. Authors may reproduce or authorize others to reproduce the above Paper for the Author's personal use or for internal company use, provided that the source and The Publisher copyright notice are mentioned, that the copies are not used in any way that implies The Publisher endorsement of a product or service of an employer, and that the copies are not offered for sale as such. Authors are permitted to grant third party requests for reprinting, republishing or other types of reuse. The Authors may make limited distribution of all or portions of the above Paper prior to publication if they inform The Publisher of the nature and extent of such limited distribution prior there to. Authors retain all proprietary rights in any process, procedure, or article of manufacture described in The Paper. This agreement becomes null and void if and only if the above paper is not accepted and published by The Publisher, or is with drawn by the author(s) before acceptance by the Publisher.