International Journal of Business and Economics Volume 19, No. 3 December, 2020

Search and Matching Frictions and Business Cycle Fluctuations in Bulgaria

Aleksandar Vasilev

Lincoln International Business School, University of Lincoln, UK

Abstract

This research investigates the quantitative importance of search and matching frictions in Bulgarian labor market, by augmenting an otherwise standard real business cycle a la Long and Plosser (1983) with a two-sided costly search and fiscal policy. This strong propagation mechanism allows the model to capture the business cycles in Bulgaria better than earlier models. The model performs well with the given data, especially along the labor market dimension, and dominates the market-clearing labor market framework featured in the standard RBC model, e.g. Vasilev (2009), as well as the indivisible labor market extension in Hansen (1985).

Keywords：General Equilibrium, Unemployment and Wages, Business Cycle, Fiscal Policy

JEL Classifications：D51, E24, E32, J40.

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