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OccBin: A toolkit for solving dynamic models with occasionally binding constraints easily

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  • Guerrieri, Luca
  • Iacoviello, Matteo

Abstract

The toolkit adapts a first-order perturbation approach and applies it in a piecewise fashion to solve dynamic models with occasionally binding constraints. Our examples include a real business cycle model with a constraint on the level of investment and a New Keynesian model subject to the zero lower bound on nominal interest rates. Compared with a high-quality numerical solution, the piecewise linear perturbation method can adequately capture key properties of the models we consider. A key advantage of the piecewise linear perturbation method is its applicability to models with a large number of state variables.

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  • Guerrieri, Luca & Iacoviello, Matteo, 2015. "OccBin: A toolkit for solving dynamic models with occasionally binding constraints easily," Journal of Monetary Economics, Elsevier, vol. 70(C), pages 22-38.
    • Handle: RePEc:eee:moneco:v:70:y:2015:i:c:p:22-38
    DOI: 10.1016/j.jmoneco.2014.08.005
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