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Misspecification tests play an important role in detecting unreliable and inadequate economic models. This book brings together many results from the growing literature in econometrics on misspecification testing. It provides theoretical analyses and convenient methods for application. The main emphasis is on the Lagrange multiplier principle, which provides considerable unification, although several other approaches are also considered. The author also examines general checks for model adequacy that do not involve formulation of an alternative hypothesis. General and specific tests are discussed in the context of multiple regression models, systems of simultaneous equations, and models with qualitative or limited dependent variables

This work focuses on the assessment of the relative performance of the so-called contact domain method, using either the Lagrange multiplier or the penalty strategies. The mathematical formulation of the contact domain method and the imposition of the contact constraints using a stabilized Lagrange multiplier method are taken from the seminal work (as cited later), whereas the penalty based implementation is firstly described here. Although both methods result into equivalent formulations, except for the difference in the constraint imposition strategy, in the Lagrange multiplier method the constraints are enforced using a stabilized formulation based on an interior penalty method, which results into a different estimation of the contact forces compared to the penalty method. Several numerical examples are solved to assess certain numerical intricacies of the two implementations. The results show that both methods perform similarly as one increases the value of the penalty parameter or decreases the value of the stabilization factor (in case of the Lagrange multiplier method). However there seems to exist a clear advantage in using the Lagrange multiplier based strategy in a few critical situations, where the penalty method fails to produce convincing results due to excessive penetration. ; The Spanish Ministry of Science and Innovation and the Catalan Government Research Department are gratefully acknowledged for their financial support under Grants BIA2008-00411 and 2009 SGR 1510, respectively. ; Peer Reviewed ; Postprint (author's final draft)

Bihari There is a vast literature on the impact of exchange rate on developing countries' economies. This paper studies the determinants of nominal exchange rate fluctuations in Sri Lanka. It employs recent secondary macroeconomics monthly time series data (2011:01-2018:07) and tests the ARDL co-integration approach with structural break LM unit root test, which was introduced by Lee and Strazicich in 2013. Results of the bound test show that the nominal exchange rate has a long-term relationship with its determinants. Further, our empirical findings suggest that a strong depreciating link exists between the nominal exchange rate and money supply in Sri Lanka during the sample period. Outcomes are signals that identify new lessons for policy-makers to implement consistent foreign exchange policies. Doing so must consider both monetary and fiscal policy simultaneously.