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Can structural small open-economy models account for the influence of foreign disturbances?

Justiniano, Alejandro; Preston, Bruce


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% of the variability observed in several Canadian series, at all forecast horizons. Accordingly, model-implied cross-correlation functions between Canada...[Show more]

CollectionsANU Research Publications
Date published: 2010
Type: Journal article
Source: Journal of International Economics
DOI: 10.1016/j.jinteco.2010.01.001


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