Occbin toolkit : IRFs under ZLB

Occbin
1

Hello everyone, I am now learning to use Occbin to solve ZLB problem.
I added the ZLB condition on the basis of Eskelinen(2021), the model was linearized, and the nominal interest rate was used in the other equations but Taylor rule according to https://forum.dynare.org/t/irfs-issues-in-sw07-with-zlb/22080.
However, the IRFs I got was still very anomalous and didn’t reflect the constraints.

How should I solve it?

Eskelinen2021.mod (2.8 KB)
Eskelinen 2021 Agent heterogeneity and inequality.pdf (1.5 MB)

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11012×782 37.1 KB

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21012×782 41.6 KB

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Your ZLB implementation is wrong. Usually, you need to rely on a notional interest rate to determine the bind and relax regimes. You currently state that the ZLB binds whenever i < 1-1/beta1, but in the ZLB regime you set

i = 1-1/beta1;

That causes two problems:

  1. In the ZLB regime, the bind condition will not be met
  2. Once you hit the ZLB, you would always have a fixed interest rate, i.e. no return to the relax regime.