Working Paper

Simple models to understand and teach business cycle macroeconomics for emerging market and developing economies

Abstract: The canonical neoclassical model is insufficient to understand business cycle fluctuations in emerging market and developing economies (EMDEs). I reformulate the models proposed by Aguiar and Gopinath (2007) and Neumeyer and Perri (2005) in simple settings that can be used to do back-of-the-envelope analysis and teach business cycle macroeconomics for EMDEs at the undergraduate level. The simplified models are employed for qualitatively explaining facts such as the countercyclicality of the trade balance and the real interest rate, and the higher volatility of output, consumption, and real wages compared with those observed in advanced countries. Simple extensions can be used to understand other empirical facts such as large capital outflows and output drops, small government spending he cyclical behavior of prices, and the negative association between currency depreciations and output.

JEL Classification: A22; E32; F32;

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Bibliographic Information

Provider: Federal Reserve Bank of Dallas

Part of Series: Globalization Institute Working Papers

Publication Date: 2015-09-01

Number: 252

Pages: 52 pages

Note: Published as: Duncan, Roberto (2015), "A Simple Model to Teach Business Cycle Macroeconomics for Emerging Market and Developing Economies," The Journal of Economic Education 46 (4): 394-402.