Hello,

I have the following conceptual questions related to deterministic and stochastic simulations for models with occasionally binding constraints (OBC, e.g. lower bound constraint on interest rates).

Let’s assume I have a non-linear model (meaning non-linearities not only due to the OBC but also in other model equations):

- Ignoring the OBC,
*stoch_simul(order=1)*and*simul*should give me the same IRFs to a one-time shock in the first period, correct? - If I now want to have IRFs respecting the OBC, I could use the max-operator in
*simul*or some toolbox (like OccBin or DynareOBC). As these toolboxes usually also work with*stoch_simul(order=1)*, should the IRFs to a one-time shock in the first period not be the same as in the deterministic*simul*? I doubt it as this would render these toolboxes redundant, but I don’t understand where the difference comes from. - As another option I could use
*extended_path*. If I understand it correctly, this will deliver the same IRFs to a one-time shock in the first period as*simul*, correct? - Maybe somehow unrelated: Could you confirm whether manually linearising the equations and then using
*model (linear); … stoch_simul;*is exactly the same as the non-linear equations with*model; … stoch_simul(order=1);*or will Dynare include some correction terms?

I know that these things have partially been discussed/answered already. But I don’t get my head around what first-order toolboxes do differently compared to the deterministic simulation in which I can easily use non-linear operators like *max* or *min*.

I hope you can help me on this.

Best regards,

Tiljim