Recent Studies on general equilibrium models with transaction costs show that the dynamics of the real exchange rate are necessarily nonlinear. Our contribution to the literature on nonlinear price adjustment mechanisms is threefold. First, we model the real exchange rates by a Multi-Regime...

Testing when a nuisance parameter is identified only under the alternative is problematic because the Likelihood Ratio test converges to a nonstandard distribution that may depend on unknown parameters. Examples include testing parameter stability in Structural Change and Threshold models. Our...