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Efficient Simulation of DSGE Models with Inequality Constraints

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  • Tom Holden

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  • Michael Paetz

    ()

Abstract

This paper presents a fast, simple and intuitive algorithm for simulation of linear dynamic stochastic general equilibrium models with inequality constraints. The algorithm handles both the computation of impulse responses, and stochastic simulation, and can deal with arbitrarily many bounded variables. To illustrate the usefulness and efficiency of this algorithm we provide two applications according to the zero lower bound (ZLB) on nominal interest rates. Our solution principle is much faster than comparable methods. We therefore expect this algorithm to be very helpful also for estimation procedures, and for a wide range of applications apart from monetary policy analysis.

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Bibliographic Info

Paper provided by Hamburg University, Department of Economics in its series Quantitative Macroeconomics Working Papers with number 21207b.

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Date of creation: Jul 2012
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Handle: RePEc:ham:qmwops:21207b

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Keywords: inequality constraints; zero lower bound; DSGE model; New Keynesian framework; two-country models;

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References

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  20. Michael Funke & Michael Paetz & Qianying Chen,, 2012. "Market and Non-Market Monetary Policy Tools in a Calibrated DSGE Model for Mainland China," Quantitative Macroeconomics Working Papers 21207, Hamburg University, Department of Economics.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Efficient Simulation of DSGE Models with Inequality Constraints
    by Christian Zimmermann in NEP-DGE blog on 2012-08-26 03:03:22
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Cited by:
  1. William T. Gavin & Benjamin D. Keen, 2012. "U.S. monetary policy: a view from macro theory," Working Papers 2012-019, Federal Reserve Bank of St. Louis.
  2. Michael Funke & Michael Paetz & Qianying Chen,, 2012. "Market and Non-Market Monetary Policy Tools in a Calibrated DSGE Model for Mainland China," Quantitative Macroeconomics Working Papers 21207, Hamburg University, Department of Economics.

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