Dear all,
I have a general question about the piecewise-linear solution to non-linear models developed in Guerrieri&Iacoviello(2015) and the corresponding occbin block of Dynare.
I have coded up an RBC model with government spending and an occasionally binding constraint. I have noticed that if I give a shock in period T>1, no variable in the model moves before T. Is this normal when using occbin?
Notice that in any RBC model with government spending any future shock to G will have an effect on today investment and consumption (i.e. negative income effect). This anticipation effect happens regardless of the presence of an occasionally binding constraint in the model. Therefore I am puzzled by my result and I am wondering whether there might be a coding error on my end.
In their paper it is specified that the piecewise linear solution will discard all information regarding the realization of future shocks. I thought the paper meant that the solution would discard only those anticipation effects due to the possibility that an occasionally binding constraint may bind at some point (e.g. precautionary savings). However, it seems that occbin discards any anticipation effect due to future shock. Is this correct?
Any help or suggestion is much appreciated,
Edo