ZLB occbin graph

[hosey_29]

Hi all,

I am still working on the DSGE model with the zero lower bound, however, when i shock the model with a negative preference shock the i_ann and i is negative. Shouldnt it be 0 when we have ZLB?

zlb_new.mod (6.8 KB)

[jpfeifer]

See

Implementing ZLB in Ireland (2004)

Your constraint is wrong. The ZLB does not bind when r=0 and therefore the interest rate is in steady state. Rather, it can fall by 1-1/beta. See also

If beta=0.99, the steady state interest rate is roughly 1 percent in steady state. In a linearized model, the ZLB is therefore 1 percentage point below the steady state.