Zero Lower Bounds in Gertler/Karadi 2011

Dynare help (legacy posts)
1

Hi all,

I am trying to introduce at Zero Lower Bounds constraint in the original Gertler & Karadi (2011) code. I am pretty new to Dynare, but does anyone have an idea of how to do this?

I have attached the original code.

Thanks in advance,

Frank
FA.mod (7.45 KB)

2

This is a stochastic model. Introducing the ZLB in rigorous way is (almost) impossible with Dynare. You would i) have to either go for the experimental “stochastic extended path”, ii) do perfect foresight and use Guerrieri/Iacoviello’s “Occbin”, or iii) use a sequence of monetary policy shock to get the ZLB exactly binding in an ad-hoc way.