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Efficient Simulation of DSGE Models with Inequality Constraints

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  • Tom Holden

    ()

  • 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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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. Hasui, Kohei, 2013. "The non-negative constraint on the nominal interest rate and the effects of monetary policy," MPRA Paper 49394, University Library of Munich, Germany.
  2. Federico GIRI, 2014. "Does Interbank Market Matter for Business Cycle Fluctuation? An Estimated DSGE Model with Financial Frictions for the Euro Area," Working Papers 398, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
  3. 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.
  4. Richard McManus, 2013. "Austerity versus Stimulus: A DSGE Political Economy Explanation," Discussion Papers 13/09, Department of Economics, University of York.
  5. Kaufmann, Daniel & Bäurle, Gregor, 2013. "Exchange Rate and Price Dynamics at the Zero Lower Bound," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79872, Verein für Socialpolitik / German Economic Association.
  6. Chen, Qianying & Funke, Michael & Paetz, Michael, 2012. "Market and Non-Market Monetary Policy Tools in a Calibrated DSGE Model for Mainland China," BOFIT Discussion Papers 16/2012, Bank of Finland, Institute for Economies in Transition.
  7. Afanasyeva, Elena & Karasulu, Meral, 2013. "Interactions of Monetary and Macroprudential Policies in a Model of the Korean Economy," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79884, Verein für Socialpolitik / German Economic Association.
  8. Funke , Michael & Paetz , Michael, 2012. "Financial system reforms and China’s monetary policy framework: A DSGE-based assessment of initiatives and proposals," BOFIT Discussion Papers 30/2012, Bank of Finland, Institute for Economies in Transition.

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