This begs the question what exactly you are trying to do. It seems you want to do stochastic simulations in your model using Occbin, i.e. employ a piecewise linear solution. In the other post you state that
Does that mean the model is non-stationary, i.e. there is the level of the exchange rate in the model and it has a trend? Or is it formulated in growth rates of the exchange rate and the growth rate is stationary? Also, Occbin requires you to have a baseline regime to which the model returns in the absence of shocks. Which regime is this in your model? The one where the constraint is binding? Or the one where the current constraint is nonbinding?
Dear professor, thank you for your reply.
Sorry for overloading with my questions, I’ve tried another specification of the model, that’s why posted again.
This model is formulated in a growth rate of the exchange rate and thus is stationary. Occbin’s baseline regime is the one where the constraint is not binding, i.e. lambda_bind is equal to zero.
For the details, I can give the equations of the household’s problem: (For simplicity I assumed in the constraint that m_f (the amount of goods that can be bought by foreign currency should be less than equal to some share (say half) of GDP)