Mixing (stochastic and deterministic) shocks with OccBin


Is it possible to solve a DSGE model with both stochastic and deterministic exogenous variables using OccBin? I am trying to solve a medium scale DSGE model with an occ. binding constraint (which worked well without the deterministic shock before) now with an anticipated path of exogenous transportation costs, but have been unsuccessful so far. My mod files ran without problems but occbin simulation has been unsuccessful. Any help would be much appreciated.


Doesn’t Occbin just work in perfect foresight context? Also, for reference: Conceptual questions on simul, stoch_simul and extended_path with OBC

Thanks. No, it works in stochastic framework with unforeseen exogenous shocks as far as I know.

Yes and no. Due to the piecewise linear solution, there will still be certainty equivalence. You won’t get the precautionary behavior typically associated with stochastic setups with occasionally binding constraints.

Ok, good point, thank you. So, never would be able to consider an anticipated shock with occbin then, right??

Given that deterministic shocks are not possible to work with, I tried news shock type of setting so that I could preserve varexo and get anticipated shock responses when an occasionally binding constraint is present, but no occbin still did not work. So, my conclusion would be that it is not possible to examine anticipated shocks (let it be deterministic shocks or news shocks) with occbin??

Thank you!

That’s not what I am saying. Of course you can do anticipated shocks.