OBC on endogenous leverage constraint

Occbin
1

Hi,

I would like to introduce an OBC on the endogenous bank leverage constraint in a simplified version of Sims and Wu (2021). I had thought that the equations to be modified (as in my pdf) when switching from binding to non-binding were:

  • the spreads (that become equal to zero when the constraint stops binding)
  • the constraint itself (substitute by lambda = 0 when it stops binding)

However, the simulation did not converge, hence I believe I am missing something. Has anyone tried this before?

Many thanks

model_SW_test.mod (9.0 KB)
model_SW_test_steadystate.m (4.0 KB)
SW2021_OBC.pdf (88.5 KB)