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Can Structural Small Open Economy Models Account for the Influence of Foreign Disturbances?

Alejandro Justiniano and Bruce Preston

No 14547, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper demonstrates that an estimated, structural, small open economy model of the Canadian economy cannot account for the substantial influence of foreign-sourced disturbances identified in numerous reduced-form studies. The benchmark model assumes uncorrelated shocks across countries and implies that U.S. shocks account for less than 3 percent of the variability observed in several Canadian series, at all forecast horizons. Accordingly, model-implied cross-correlation functions between Canada and U.S. are essentially zero. Both findings are at odds with the data. A specification that assumes correlated cross-country shocks partially resolves this discrepancy, but still falls well short of matching reduced-form evidence.

JEL-codes: F41 (search for similar items in EconPapers)
Date: 2008-12
New Economics Papers: this item is included in nep-cba, nep-dge, nep-ifn and nep-opm
Note: EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Published as Justiniano, Alejandro & Preston, Bruce, 2010. "Can structural small open-economy models account for the influence of foreign disturbances?," Journal of International Economics, Elsevier, vol. 81(1), pages 61-74, May.

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Related works:
Journal Article: Can structural small open-economy models account for the influence of foreign disturbances? (2010) Downloads
Working Paper: Can structural small open economy models account for the influence of foreign disturbances? (2009) Downloads
Working Paper: CAN STRUCTURAL SMALL OPEN ECONOMY MODELS ACCOUNT FOR THE INFLUENCE OF FOREIGN DISTURBANCES? (2006) Downloads
Working Paper: Can Structural Small Open Economy Models Account for the Influence of Foreign Disturbances? (2006) Downloads
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