TY  - BOOK
AU  - Justiniano,Alejandro
AU  - Preston,Bruce
ED  - National Bureau of Economic Research.
TI  - Can Structural Small Open Economy Models Account for the Influence of Foreign Disturbances?
T2  - NBER working paper series
PY  - 2008///
CY  - Cambridge, Mass.
PB  - National Bureau of Economic Research
N1  - December 2008; Hardcopy version available to institutional subscribers
N2  - 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
UR  - https://www.nber.org/papers/w14547
UR  - http://dx.doi.org/10.3386/w14547
ER  -