OccBin: A Toolkit for Solving Dynamic Models with Occasionally Binding Constraints Easily

Guerrieri, Luca; Iacoviello, Matteo

doi:10.17016/feds.2014.047

Cited by 137 publications

(246 citation statements)

References 28 publications

(41 reference statements)

Supporting

Mentioning

241

Contrasting

Order By: Relevance

“…-Our algorithm imposes the ELB in a manner similar to that of and Luca Guerrieri and Matteo Iacoviello (2015). We assume that agents never expect the ELB to bind for more than 15 years.…”

Section: Iic Our Simulation Approachmentioning

confidence: 99%

Monetary Policy in a Low Interest Rate World

Kiley¹,

Roberts²

2017

Brookings Papers on Economic Activity

178

169

View full text Add to dashboard Cite

Nominal interest rates may remain substantially below the averages of the last half century, because central banks' inflation objectives lie below the average level of inflation, and estimates of the real interest rate that are likely to prevail over the long run fall notably short of the average real interest rate experienced during this period. Persistently low nominal interest rates may lead to more frequent and costly episodes at the effective lower bound (ELB) on nominal interest rates. We revisit the frequency and potential costs of such episodes in a world of low interest rates, using both a dynamic stochastic general equilibrium (DSGE) model and the Federal Reserve's largescale econometric model, the FRB/US model. Four main conclusions emerge. First, monetary policy strategies based on traditional, simple policy rules lead to poor economic performance when the equilibrium interest rate is low, with economic activity and inflation more volatile and systematically falling short of desirable levels. Moreover, the frequency and length of ELB episodes under such policy approaches are estimated to be significantly higher than in previous studies. Second, a risk adjustment to a simple rule-whereby monetary policymakers are more accommodative, on average, than prescribed by the rule-ensures that inflation averages its 2 percent objective, and requires that policymakers systematically seek inflation near 3 percent when the ELB is not binding. Third, commitment strategies, whereby monetary accommodation is not removed until either inflation or economic activity overshoots its longrun objective, are very effective in both the DSGE and FRB/US models. And

show abstract

“…-Our algorithm imposes the ELB in a manner similar to that of and Luca Guerrieri and Matteo Iacoviello (2015). We assume that agents never expect the ELB to bind for more than 15 years.…”

Section: Iic Our Simulation Approachmentioning

confidence: 99%

Monetary Policy in a Low Interest Rate World

Kiley¹,

Roberts²

2017

Brookings Papers on Economic Activity

178

169

View full text Add to dashboard Cite

show abstract

“…, p l , j and m. After detrending the variables by their balanced growth trends, we use the methods described in Appendix B and more fully developed in Guerrieri and Iacoviello (2013) to solve the model subject to the two occasionally binding constraints given by equations A.13 and A.33.…”

Section: Appendix Appendix a Equilibrium Conditions Of The Full Modelmentioning

confidence: 99%

Collateral constraints and macroeconomic asymmetries

Guerrieri

Iacoviello

2017

Journal of Monetary Economics

Self Cite

217

112

View full text Add to dashboard Cite

A model with collateral constraints displays asymmetric responses to house price changes. When housing wealth is high, collateral constraints become slack, and the response of consumption and hours to shocks that move house prices is positive yet small.When housing wealth is low, collateral constraints become tight, and the response of consumption and hours to house price changes is negative and large. This finding is corroborated using evidence from national, state-level, and MSA-level data. Wealth effects computed in normal times may underestimate the response to large house price declines.Debt-relief policies may be far more effective during protracted housing slumps.

show abstract

“…We use the OccBin solution method developed by Guerrieri and Iacoviello (2015) to treat the occasionally binding constraint via a piecewise linear solution. Moreover, we use an algorithm as in Giovannini and Ratto (2017) to obtain smoothed estimates of latent variables as well as the sequence of regimes along the historical sample.…”

Section: Implementation Of the Occasionally Binding Constraintmentioning

confidence: 99%

“…We use the algorithm byGiovannini and Ratto (2017) to obtain estimated latent variables and a corresponding sequence of historical regimes. The algorithm works as follows: It guesses an initial sequence of historical regimes and computes the sequence of state-space matrices following the piecewise linear solution byGuerrieri and Iacoviello (2015). Given the state-space matrices, the Kalman filter is used to estimate the smoothed variables and shocks, which endogenously determine a new sequence of regimes.…”

mentioning

confidence: 99%

The macroeconomic effects of quantitative easing in the euro area: Evidence from an estimated DSGE model

Hohberger

Priftis

Vogel

2019

Journal of Economic Dynamics and Control

View full text Add to dashboard Cite

This paper estimates an open-economy dynamic stochastic general equilibrium model with Bayesian techniques to analyse the macroeconomic effects of the European Central Bank's (ECB's) quantitative easing (QE) programme. Using data on government debt stocks and yields across maturities, we identify the parameter governing portfolio adjustment in the private sector. Shock decompositions suggest a positive contribution of ECB QE to annual euro area output growth and inflation in 2015-16 of up to 0.3 and 0.6 percentage points (pp) in the linearised version of the model. Allowing for an occasionally binding zerobound constraint by using piecewise linear solution techniques raises the positive impact to up to 0.7 and 0.8 pp. RésuméNous estimons, par des techniques bayésiennes, un modèle d'équilibre général dynamique et stochastique en économie ouverte afin d'analyser les effets macroéconomiques du programme d'assouplissement quantitatif de la Banque centrale européenne (BCE). À partir des données portant sur l'encours des titres d'État et les taux de rendement pour la gamme des échéances, nous évaluons le paramètre qui détermine les ajustements de portefeuilles dans le secteur privé. Les décompositions de chocs effectuées montrent qu'en zone euro, les mesures d'assouplissement quantitatif de la BCE auraient entraîné, en 2015-2016, des effets positifs sur la croissance annuelle de la production et sur l'inflation à hauteur de 0,3 et 0,6 point de pourcentage dans la version linéarisée du modèle. Lorsque nous permettons que la contrainte de la borne du zéro soit occasionnellement active au moyen de techniques de linéarisation, l'incidence favorable se chiffre respectivement à 0,7 et 0,8 point de pourcentage. Sujets : Modèles économiques; Taux d'intérêt; Transmission de la politique monétaire Codes JEL : E44, E52, E53, F41 Non-technical SummaryIn early 2015 the European Central Bank (ECB) joined the group of central banks that have implemented large-scale asset purchase programmes as unconventional policy measures. The ECB's quantitative easing (QE) programme, announced in January 2015, foresaw buying €60 billion of assets a month from March 2015 to September 2016, which in sum corresponds to circa 10% of annualised euro area (EA) gross domestic product (GDP). It has been continuously revised in both size and duration since then. This paper analyses the macroeconomic effects of the ECB's QE programme using a tworegion dynamic stochastic general equilibrium (DSGE) model for the EA and the rest of the world, estimated with Bayesian techniques. The estimation of the model is undertaken in an environment where the zero lower bound may be binding and to solve such models requires extending previous algorithms. QE is introduced into the model by adding a central bank balance sheet and distinguishing between short-term and long-term government debt. We use a formulation of a private-sector portfolio that allows for non-neutral effects of central bank purchase programmes due to imperfect substitutability between assets of different...

show abstract

OccBin: A Toolkit for Solving Dynamic Models with Occasionally Binding Constraints Easily

Cited by 137 publications

References 28 publications

Monetary Policy in a Low Interest Rate World

Monetary Policy in a Low Interest Rate World

Collateral constraints and macroeconomic asymmetries

The macroeconomic effects of quantitative easing in the euro area: Evidence from an estimated DSGE model

Contact Info

Product

Resources

About