Hey, I want to put a restriction on any endogenous variable. I want that every time it should be less than or equal to some maximum value. E.G.
If I have a relation ax + by = c, and I want my variable y to be always less than equal to 10. How should I do it?
- Is this for a stochastic model or a perfect foresight context?
- Is there an economic reason for bounding this endogenous variable?
Yes Professor, it is a stochastic model, plus I am modelling a scenario in which loan (from Bank) taken by a firm is bounded by the value of its collateral. I don’t know apriori whether this will be binding or not.
That is a tricky problem. You have an occasionally binding constraint. Handling this in a stochastic context is difficult. You could try Dynare’s stochastic extended path or use a perfect foresight version via Occbin.
Okay let me search through what you have suggested. Thanx!