Presentation

Minisymposium
:
Efficient Solution, Filtering and Estimation of Models with OBCs
Presenter
Event Type
Minisymposium
Scientific Fields
Emerging Application Domains
TimeWednesday, 12 June 201914:00 - 14:30
LocationHG D 3.2
DescriptionOccasionally binding constraints (OBCs) play a central role in macroeconomic modelling since major developed economies have hit the effective lower bound (ELB) on interest rates. I propose a solution method for rational expectations models with OBCs and a Bayesian filter/smoother that, both combined, can be used for quick and accurate Bayesian estimation of large-scale models. The quasi-analytic solution method calculates the endogenous duration at the constraint while avoiding matrix inversions and simulations at runtime for gains in computational speed. The IPA (iterative path-adjusting transposed-ensemble RTS) smoother is a hybrid form of the particle filter and iterative versions of the Kalman filter. Requiring only a very small number of particles, it can be used to approximate the likelihood with high accuracy, and applied to estimate the state distributions while fully respecting the nonlinearity of the transition function. As an example, I use these methods to estimate the simple New Keynesian model.