@techreport{NBERw14547,
 title = "Can Structural Small Open Economy Models Account for the Influence of Foreign Disturbances?",
 author = "Alejandro Justiniano and Bruce Preston",
 institution = "National Bureau of Economic Research",
 type = "Working Paper",
 series = "Working Paper Series",
 number = "14547",
 year = "2008",
 month = "December",
 URL = "http://www.nber.org/papers/w14547",
 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.},
}