Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/144569
Authors: 
Holden, Tom D.
Year of Publication: 
2016
Abstract: 
We construct the first algorithm for the perfect foresight solution of otherwise linear models with occasionally binding constraints, with fixed terminal conditions, that is guaranteed to return a solution in finite time, if one exists. We also provide a proof of the inescapability of the “curse of dimensionality” for this problem when nothing is known a priori about the model. We go on to extend our algorithm to deal with stochastic simulation, other non-linearities, and future uncertainty. We show that the resulting algorithm produces fast and accurate simulations of a range of models with occasionally binding constraints.
Subjects: 
occasionally binding constraints
zero lower bound
computation
DSGE
linear complementarity problem
JEL: 
C61
C63
E3
E4
E5
Document Type: 
Preprint

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