A Real-business-cycle Model with a Stochastic Capital Share: Lessons for Bulgaria (1999–2018)

<p>We allow for a stochastic capital share into a real-business-cycle setup with a governmentsector. We calibrate the model to Bulgarian data for the period following the introductionof the currency board arrangement (1999–2018). We investigate the quantitativeimportance of the variability in capital share for cyclical fluctuations in Bulgaria. Inparticular, allowing for a stochastic capital share in the model increases variability ofinvestment and employment, at the cost of decreasing the volatility of wages, and causingemployment to become countercyclical.</p>