A real-business-cycle model with human capital accumulation: lessons for Bulgaria (1999-2018)

Abstract

ABSTRACT We introduce human capital accumulation into a real-business-cycle setup. 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 presence of skill acquisition for cyclical fluctuations in Bulgaria. After subjecting the smodel to a battery of tests, we find the quantitative effect of such a channel – aside from producing a moderate increase in the variability of hours – to be relatively small. In other words, government spending on education turns out to be an ineffective instrument when it comes to smoothing the cycle.