A simple model to teach business cycle macroeconomics for emerging market and developing economies

The canonical neoclassical model is insufficient to understand business cycle fluctuations in emerging market and developing economies. The author reformulates the model proposed by Aguiar and Gopinath ( 2007 ) in a simple setting that can be used to teach business cycle macroeconomics for emerging market and developing economies at the undergraduate level. The simplified model is employed for qualitatively explaining facts such as the highly countercyclicality of the trade balance and the higher volatility of output and consumption compared with those observed in advanced countries.