Simple Models to Understand and Teach Business Cycle Macroeconomics for Emerging Market and Developing Economies

Roberto Duncan

No 49, Working Papers from Peruvian Economic Association

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 multipliers, the cyclical behavior of prices, and the negative association between currency depreciations and output.

Keywords: Emerging market economies; economic education; undergraduate macroeconomics; business cycles (search for similar items in EconPapers)
JEL-codes: A22 E32 F32 (search for similar items in EconPapers)
Date: 2015-07
New Economics Papers: this item is included in nep-dge and nep-mac
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Citations: View citations in EconPapers (2)

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Working Paper: Simple models to understand and teach business cycle macroeconomics for emerging market and developing economies (2015)
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