Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
966496 | Journal of Monetary Economics | 2015 | 17 Pages |
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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Authors
Luca Guerrieri, Matteo Iacoviello,