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

Listed author(s):
  • Duncan, Roberto

    ()

    (Ohio University)

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.

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File URL: http://www.dallasfed.org/assets/documents/institute/wpapers/2015/0252.pdf
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Paper provided by Federal Reserve Bank of Dallas in its series Globalization and Monetary Policy Institute Working Paper with number 252.

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Length: 52 pages
Date of creation: 01 Sep 2015
Handle: RePEc:fip:feddgw:252
DOI: 10.24149/gwp252
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.
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  1. César Calderón & Roberto Duncan, 2003. "Purchasing power parity in an emerging market economy: a long- span study for Chile," Estudios de Economia, University of Chile, Department of Economics, vol. 30(1 Year 20), pages 103-132, June.
  2. Emine Boz & C. Bora Durdu & Nan Li, 2015. "Emerging Market Business Cycles: The Role of Labor Market Frictions," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(1), pages 31-72, February.
  3. Konstantinos Angelopoulos & George Economides & Vanghelis Vassilatos, 2011. "Do institutions matter for economic fluctuations? Weak property rights in a business cycle model for Mexico," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(3), pages 511-531, July.
  4. Graciela L. Kaminsky & Carmen M. Reinhart & Carlos A. Végh, 2005. "When It Rains, It Pours: Procyclical Capital Flows and Macroeconomic Policies," NBER Chapters,in: NBER Macroeconomics Annual 2004, Volume 19, pages 11-82 National Bureau of Economic Research, Inc.
  5. Roberto Chang & Andrés Fernández, 2013. "On The Sources Of Aggregate Fluctuations In Emerging Economies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54, pages 1265-1293, November.
  6. Hevia, Constantino, 2014. "Emerging market fluctuations: What makes the difference?," Journal of International Economics, Elsevier, vol. 94(1), pages 33-49.
  7. Javier Garcia-Cicco & Roberto Pancrazi & Martin Uribe, 2010. "Real Business Cycles in Emerging Countries?," American Economic Review, American Economic Association, vol. 100(5), pages 2510-2531, December.
  8. Aguiar, Mark & Gopinath, Gita, 2007. "Emerging Market Business Cycles: The Cycle is the Trend," Scholarly Articles 11988098, Harvard University Department of Economics.
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  12. Duncan, Roberto, 2014. "Institutional quality, the cyclicality of monetary policy and macroeconomic volatility," Journal of Macroeconomics, Elsevier, vol. 39(PA), pages 113-155.
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  16. Mark Aguiar & Gita Gopinath, 2007. "Emerging Market Business Cycles: The Cycle Is the Trend," Journal of Political Economy, University of Chicago Press, vol. 115, pages 69-102.
  17. Aart Kraay, 2014. "Government Spending Multipliers in Developing Countries: Evidence from Lending by Official Creditors," American Economic Journal: Macroeconomics, American Economic Association, vol. 6(4), pages 170-208, October.
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  28. Mendoza, Enrique G, 1991. "Real Business Cycles in a Small Open Economy," American Economic Review, American Economic Association, vol. 81(4), pages 797-818, September.
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