Efficient solution and computation of models with occasionally binding constraints
- Occasionally binding constraints have become an important part of economic modelling, especially since western central banks see themselves (again) constraint by the so-called zero lower bound (ZLB) of the nominal interest rate. A binding ZLB constraint poses a major problem for a quantitative-structural analysis: Linear solution methods do no work in the presence of a non-linearity such as the ZLB and existing alternatives tend to be computationally demanding. The urge to study macroeconomic questions related to the Great Recession and the Covid-19 crisis in a quantitative-structural framework requires algorithms that are not only accurate, but that are also robust, fast, and computationally efficient. A particularly important application where efficient and fast methods for occasionally binding constraints (OBCs) are needed is the Bayesian estimation of macroeconomic models. This paper shows that a linear dynamic rational expectations system with OBCs, depending on the expected duration of the constraint, can be represented in closed form. Combined with a set of simple equilibrium conditions, this can be exploited to avoid matrix inversions and simulations at runtime for signifcant gains in computational speed.
Author: | Gregor BöhlGND |
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URN: | urn:nbn:de:hebis:30:3-564457 |
URL: | https://www.imfs-frankfurt.de/fileadmin/user_upload/IMFS_WP/IMFS_WP_148.pdf |
Parent Title (English): | Working paper series / Institute for Monetary and Financial Stability ; 148 |
Series (Serial Number): | Working paper series / Institute for Monetary and Financial Stability (148) |
Publisher: | Johann Wolfgang Goethe-Univ., Inst. for Monetary and Financial Stability |
Place of publication: | Frankfurt am Main |
Document Type: | Working Paper |
Language: | English |
Year of Completion: | 2021 |
Year of first Publication: | 2021 |
Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
Release Date: | 2021/01/19 |
Tag: | Computational Methods; Effective Lower Bound; Occasionally Binding Constraints |
Issue: | January 11, 2021 |
Page Number: | 17 |
HeBIS-PPN: | 475489063 |
Institutes: | Wirtschaftswissenschaften / Wirtschaftswissenschaften |
Wissenschaftliche Zentren und koordinierte Programme / Institute for Monetary and Financial Stability (IMFS) | |
Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE) | |
Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
Sammlungen: | Universitätspublikationen |
Licence (German): | Deutsches Urheberrecht |