Problem with ZLB implementation

Occbin
#1

Hi, I am trying to replicate a DSGE model and adding the ZLB binding constraint and I am using Occbin in dynare 5.0. Unfortunately, I get some errors. Could you help me understand the problem?

EA_SW03_rep.mod (11.6 KB)

Thank you
Marco

Occbin in Dynare 5.0
#2

The error occurs, because the exogenous variable y_ is not used in the model-block.
Either delete this variable from the varexo; command or use the nostrict-option.
E.g. dynare EA_SW03_rep nostrict

#3

I always use the nostrict-option! There are other errors!

#4

I cannot replicate the errors! If I call your file with dynare EA_SW03_rep nostrict under Dynare 5.0, it works.
But you have not added the ZLB binding constraint.

#5

Sorry, the file with ZLB binding constraint is this:
EA_SW03_rep_zlb.mod (11.9 KB)

#6

Your implementation of the ZLB is wrong.

occbin_constraints;
name 'ZLB'; bind interestq<1;
end;

Since you use the linear option in the model block, interestq is zero in steady state.
But under your implementation the constraint will bind in steady state and you stay in the alternative regime. OccBin requires that the solution returns back to the reference regime in finite time.

Maybe you are looking for something like this:
EA_SW03_rep_zlb.mod (12.2 KB)

#7

ok, thank you very much. Now it is really clear!