Issue with using OccBin package for borrowing constraint

Occbin
1

Dear all,

I am workin with model by Gambacorta and Signoretti Should monetary policy lean against the wind?: An analysis based on a DSGE model with banking, where I have tried to implement OccBin package within Dynare to see how the model behaves with the occasionally binding constraint. For this, I used Dynare manual and also followed code provided by Professor Pfeifer borrcon.mod

However, I am puzzled with how to include lead variable into the borrowing constraint, i.e. price of the capital q_k(+1)?
I know I should define an auxiliary variable for that, but I do not know how to proceed and how to do this.

One more thing - the reference regime I have chosen is the one where borrowing constraint binds.
Can I use the regime where constraint binds as a reference regime? In Dynare manual it is said in the baseline (non-binding) regime, which to me means that non-binding regime is the reference one. In general, is there any difference which regime to choose as a reference one?

Would be very happy to get any comment or suggestions!

Best regards.

2
  1. Usually, you would define q_k_exp=q_k(+1) and use that in the constraint.
  2. Yes, there is a difference. The baseline regime has to be the one where the system will settle in the absence of any shocks.
3
  1. Thank you very much! It works!
  2. Professor, maybe I miss the point, but it seems to me that

is the steady state of the economy? For instance, I assume that the constraint binds in the steady state, I solve for the steady state with this assumption, everything is fine. And then I declare the baseline regime to be the one where constraint binds.

4
  1. Yes, that is right.
5

Professor,

Thank you very much!