Hi, I’m also struggling with Occbin in Dynare 5.0, and would really appreciate some help. My model is supposed to implement quantitative easing in a three agent New Keynesian framework. Without the occasionally binding constraints, the model is running fine. However, I would like to introduce two occasionally binding constraints into the model.
First, a ZLB. My idea is that the economy is first hit by a demand shock that brings the economy to its ZLB. Afterwards, there is a QE shock that, inter alia, increases inflation and output, and, hence, brings the economy back to an environment where the central bank can conduct conventional monetary policy according to the Taylor Rule. The model I entered in Dynare is already fully log-linearised. In steady state, (nom.) interest rates are at 1/0.99. Therefore, I implemented the ZLB at where the log-linearised interest rate variable gets below -1% deviation from its steady state. I’d like the variable to stay at this level until the Taylor rule suggests higher interest rates again. However, I somehow don’t get a piecewise linear graph that binds the interest rate at -1%.
Second, a borrowing constraint that is supposed to be binding in steady state (similarly to Iacoviello (2005)). As far as I’m understanding, Occbin always assumes that the constraint is relaxed in steady state. Therefore, I defined a binding constraint as “relax”, and a slack constraint as “bind”. Here, the piecewise linear graph stops as soon as my complementary slackness multiplier Muw gets negative.
I’m pretty new to dynare so please be forgiving if my approach is extremely naive^^. It would be extremely helpful to receive some advice about what I’m doing wrong.
Best wishes
loglinQEwithOccbin.mod (3.8 KB)