A Business-Cycle Model with a Modified Cash-in-Advance Feature and Government Sector : The Case of Bulgaria (1999-2018)

We augment an otherwise standard business cycle model with a richer government sector, and add a modified Cash-in-Advance (CIA) considerations. In particular, the CIA constraint of Cole (2020) is extended to include private investment and government consumption, and allows a proportion of total expenditure to be done using credit. This specification is then calibrated to Bulgarian data after the introduction of the currency board (1999-2018), which gives a role to money in accentuating economic fluctuations. In particular, the modified CIA constraint produces a mechanism that allows the framework to reproduce better observed variability and correlations among model variables and those characterizing the labor market in particular