This paper investigates the extent to which modern DSGE models, which feature local currency pricing, home bias, nontraded goods, and incomplete markets, can generate nonlinear real exchange rate dynamics that are consistent with those found in the time series literature using data from the...

This paper investigates the properties of a class of models which incorporate nonlinear dynamics, known as Threshold Autoregressive (TAR) models. Simulations show that within the context of the real exchange rate literature, a threshold model of exchange rates exhibits significant small sample...