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

By Luca Guerrieri, Matteo Iacoviello. 2015

451 citations recorded by the source corpus.

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.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/f691570817c16e25b7e5472713de058983bc0ebb

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In Economics and Econometrics

1. J. L. Roux
2. P. Surico
3. P. Bunn
4. Kathy Reinold
5. S. Kaufmann
6. Haroon Mumtaz

Citations in the corpus

• Household Leverage and the Recession (2011, unknown): “0 vit(s) log (cit(s)) di+ η h t (s) log (ht(s))− η t (s) 1 + ν nt(ι, s) 1+ν ] (24)”
• Collateral Constraints and Macroeconomic Asymmetries (2013, unknown): “For instance, see Del Negro, Eggertsson, Ferrero, and Kiyotaki (2011), Jermann and Quadrini (2012), Christiano, Motto, and Rostagno (2013).”
• The consumption response to positive and negative income shocks (2017, methodology): “( ) ( ) (5) We solve the model using the occasionally binding constraints toolkit of Guerrieri and Iacoviello (2015).”