# Liquidity constraint or credit rationning in Growth models

**URL:** <https://forum.dynare.org/t/liquidity-constraint-or-credit-rationning-in-growth-models/15479>\
**Category:** General DSGE Modeling\
**Created:** [2 April 2020 08:20 UTC](https://forum.dynare.org/t/liquidity-constraint-or-credit-rationning-in-growth-models/15479 "2020-04-02T08:20:00Z")\
**Posts on this page:** 6\
**Page:** 1

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**Author:** ![hipa](https://forum.dynare.org/letter_avatar_proxy/v4/letter/h/ad7895/32.png) [@hipa](https://forum.dynare.org/u/hipa)\
**Post date:** [2 April 2020 08:20 UTC](https://forum.dynare.org/t/liquidity-constraint-or-credit-rationning-in-growth-models/15479/1 "2020-04-02T08:20:01Z")

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Dear members,

I would like to know the simplest way to add a liquidity constraint (other than assuming two type of agents: Ricardian vs non Ricardian) in a growth model, in order to reflect the limits of the level of debt so that households can’t “fully adjust” their expenses when a shock hits the economy.

I reckon that a model with Ricardian vs non-Ricardian is superior, but then calibrated the model based on long-run ratios becomes tricky. I do not really know how the variables of interest (such as consumption) split between non-ricardian and Ricardian households.

Thank you.

Best regards

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**Author:** ![jpfeifer](https://forum.dynare.org/user_avatar/forum.dynare.org/jpfeifer/32/5044_2.png) [@jpfeifer](https://forum.dynare.org/u/jpfeifer)\
**Post date:** [2 April 2020 16:50 UTC](https://forum.dynare.org/t/liquidity-constraint-or-credit-rationning-in-growth-models/15479/2 "2020-04-02T16:50:48Z")

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That depends on what you are trying to do. You can have a single agent that faces a liquidity constraint.

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**Author:** ![hipa](https://forum.dynare.org/letter_avatar_proxy/v4/letter/h/ad7895/32.png) [@hipa](https://forum.dynare.org/u/hipa)\
**Post date:** [3 April 2020 09:27 UTC](https://forum.dynare.org/t/liquidity-constraint-or-credit-rationning-in-growth-models/15479/3 "2020-04-03T09:27:02Z")

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I’m trying to assess the impacts of tax (deterministic) shocks on households and government revenues. Is there an easy way to implement this liquidity constraint without adding too much parameters?

Thanks again

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**Author:** ![jpfeifer](https://forum.dynare.org/user_avatar/forum.dynare.org/jpfeifer/32/5044_2.png) [@jpfeifer](https://forum.dynare.org/u/jpfeifer)\
**Post date:** [3 April 2020 10:17 UTC](https://forum.dynare.org/t/liquidity-constraint-or-credit-rationning-in-growth-models/15479/4 "2020-04-03T10:17:09Z")

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Simply follow the literature on occasionally binding constraints.

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**Author:** ![cmarch](https://forum.dynare.org/user_avatar/forum.dynare.org/cmarch/32/7827_2.png) [@cmarch](https://forum.dynare.org/u/cmarch)\
**Post date:** [4 April 2020 14:56 UTC](https://forum.dynare.org/t/liquidity-constraint-or-credit-rationning-in-growth-models/15479/5 "2020-04-04T14:56:59Z")

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Hi hipa,

Following @jpfeifer’s advice, you may also want to have a look at models that feature collateral constraints as well as a balanced-growth path. An example is Iacoviello and Neri (2010) [https://www.matteoiacoviello.com/research\_files/AEJ\_2010.pdf](https://www.matteoiacoviello.com/research_files/AEJ_2010.pdf)

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**Author:** ![hipa](https://forum.dynare.org/letter_avatar_proxy/v4/letter/h/ad7895/32.png) [@hipa](https://forum.dynare.org/u/hipa)\
**Post date:** [6 April 2020 09:51 UTC](https://forum.dynare.org/t/liquidity-constraint-or-credit-rationning-in-growth-models/15479/6 "2020-04-06T09:51:48Z")

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Oh cool!

Thanks for the reference.