The Impact of Foreign Stock Markets on Macroeconomic Dynamics in Open Economies: a Structural Estimation”,

Abstract. This paper employs a structural New Keynesian-style model with an international wealth channel to estimate the effect of foreign stock market fluctuations on small open economy countries. The magnitude of the wealth channel in the model depends on the length of economic agents' planning horizon when taking financial decisions. The model is estimated on data for a sample of small open economies, which can in principle be affected by changes in a largest foreign stock market: the country considered are Australia