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FiPIt: A Simple, Fast Global Method for Solving Models with Two Endogenous States & Occasionally Binding Constraints

Enrique Mendoza () and Sergio Villalvazo ()

Review of Economic Dynamics, 2020, vol. 37, 81-102

Abstract: We propose a simple and fast fixed-point iteration algorithm (FiPIt) to obtain the global, non-linear solution of macro models with two endogenous state variables and occasionally binding constraints. This method uses fixed-point iteration on Euler equations to avoid solving two simultaneous non-linear equations (as with the time iteration method) or creating modified state variables requiring irregular interpolation (as with the endogenous grids method). In the small-open-economy RBC and Sudden Stops models provided as examples, FiPIt is much faster than time iteration and various hybrid methods. (Copyright: Elsevier)

Keywords: DSGE models; Global solutions; Occasionnally binding constraints (search for similar items in EconPapers)
JEL-codes: E17 E44 F34 F41 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.red.2020.01.001

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