In current literature, many empirical papers on open economy DSGE models show that there is mininal effect of foreign shocks on domestic aggregate activities, but they do not give some explanations for this failure.
Thus, it seem to be fair to say that it is not good idea to apply an open economy DSGE model in explanning real business cylce in the context of foreign sector
Can anyone give me some explanations for this failure of open economy DSGE models? Is this to belong to misspecification or estimation error?
Thank you so much