The failure of open economy DSGE model

Hallo Leute

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

Which papers are you referring to? And which channels do you have in mind? There is a long literature on small open economies being driven by world-market shocks like interest rates.

Dear Prof. Pfeifer

For example here: Can structural small open-economy models account for the influence of foreign disturbances?


Have you seen


Hallo Punn
It is great
Thank a lots for that