Always Binding Credit Constraint


#1

Dear all

I’m trying to run a stochastic simulation with a credit constraint (inequality constraint), which is always binding if the interest rate r < 1/beta. But how can I put the inequality condition that r < 1/beta into my model in dynare?

Greetings


#2

I guess you can do it somehow with the perfect foreseight solution. But the best way is with Iacoviello and Guerrieri toolkit occbin. You can download it at Matteo’'s webpage.


#3

Thanks a lot for your answer, I will try that.


#4

I am not sure I understand the question. The title talks about an always binding constraint. But then your description is about an occasionally binding constraint. @p.gelain’s suggestion is correct if you want to work under perfect foresight. Depending on what you are trying to do, the lmccp option in Dynare may also be an option. See https://github.com/JohannesPfeifer/DSGE_mod/blob/master/Gali_2015/Gali_2015_chapter_5_discretion_ZLB.mod


#5

Hi, If you need to simulate time series you can use the extended path approach (search for the extended_path command in the reference manual).

Best,
Stéphane.


#6

Hey, thanks a lot for your replies. I made it run now. The credit constraint is always binding if the interest rate < 1/beta. And now with the (finally) correct model, this condition is always fulfilled for low parameter values for the credit constraint.

Again, thanks for your help.