OccBin: A Toolkit for Solving Dynamic Models With Occasionally Binding Constraints Easily

Luca Guerrieri and Matteo Iacoviello

No 2014-47, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We describe how to adapt a first-order perturbation approach and apply it in a piecewise fashion to handle occasionally binding constraints in dynamic models. Our examples include a real business cycle model with a constraint on the level of investment and a New Keynesian model subject to the zero lower bound on nominal interest rates. We compare the piecewise linear perturbation solution with a high-quality numerical solution that can be taken to be virtually exact. The piecewise linear perturbation method can adequately capture key properties of the models we consider. A key advantage of this method is its applicability to models with a large number of state variables.

Keywords: Occasionally binding constraints; DSGE models; regime shifts; first-order perturbation (search for similar items in EconPapers)
Pages: 50 pages
Date: 2014-07-07
New Economics Papers: this item is included in nep-cmp, nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Related works:
Journal Article: OccBin: A toolkit for solving dynamic models with occasionally binding constraints easily (2015)
Working Paper: OccBin: A Toolkit for Solving Dynamic Models With Occasionally Binding Constraints Easily (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2014-47

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