This paper develops a dynamic stochastic general equilibrium (DSGE) model for an open economy and estimates it using Bayesian techniques on Euro area data. The model incorporates several open economy features and nominal and real frictions that have been important for the empirical fit of closed economy models. The key contributions of the paper are: 1. **Theoretical Development**: The standard DSGE model is extended to an open economy setting, incorporating features such as incomplete exchange rate pass-through, nominal price rigidities, sticky prices, sticky wages, variable capital utilization, and capital adjustment costs. 2. **Bayesian Estimation**: The model is estimated using Bayesian methods, which allow for the assessment of the relative importance of various shocks and frictions in explaining the dynamic behavior of an open economy. 3. **Empirical Evaluation**: The model's empirical properties are evaluated using standard validation methods, including comparisons of vector autocovariance functions and unconditional second moments with the actual data. The paper finds that the estimated model captures the volatility and persistence in the real exchange rate well, and that the model yields a high elasticity of substitution between domestic and imported goods. Price stickiness is also found to be important, with firms in both the domestic, export, and import sectors experiencing significant price stickiness. The model also shows that many shocks, such as productivity shocks and imported investment markup shocks, are important for output and inflation in the open economy framework. The paper concludes by discussing the implications of these findings for monetary policy and business cycle analysis in an open economy context.This paper develops a dynamic stochastic general equilibrium (DSGE) model for an open economy and estimates it using Bayesian techniques on Euro area data. The model incorporates several open economy features and nominal and real frictions that have been important for the empirical fit of closed economy models. The key contributions of the paper are: 1. **Theoretical Development**: The standard DSGE model is extended to an open economy setting, incorporating features such as incomplete exchange rate pass-through, nominal price rigidities, sticky prices, sticky wages, variable capital utilization, and capital adjustment costs. 2. **Bayesian Estimation**: The model is estimated using Bayesian methods, which allow for the assessment of the relative importance of various shocks and frictions in explaining the dynamic behavior of an open economy. 3. **Empirical Evaluation**: The model's empirical properties are evaluated using standard validation methods, including comparisons of vector autocovariance functions and unconditional second moments with the actual data. The paper finds that the estimated model captures the volatility and persistence in the real exchange rate well, and that the model yields a high elasticity of substitution between domestic and imported goods. Price stickiness is also found to be important, with firms in both the domestic, export, and import sectors experiencing significant price stickiness. The model also shows that many shocks, such as productivity shocks and imported investment markup shocks, are important for output and inflation in the open economy framework. The paper concludes by discussing the implications of these findings for monetary policy and business cycle analysis in an open economy context.