Are Firing Costs Important for Business Cycles? Lessons from Bulgaria (1999–2018)

We introduce firing costs into a real-business-cycle setup augmented with a detailed government sector. We calibrate the model to Bulgarian data for the period following the introduction of the currency board arrangement (1999)(2000)(2001)(2002)(2003)(2004)(2005)(2006)(2007)(2008)(2009)(2010)(2011)(2012)(2013)(2014)(2015)(2016)(2017)(2018). We investigate the importance of such labour market frictions for cyclical fluctuations in Bulgaria. Firing costs decrease employment volatility and pro-cyclicality, where both effects come at odds with data. Besides those, we do not find other important effects of firing costs for business cycle fluctuations in Bulgaria.