Zero bounds in models

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ashtongate
Posts: 21
Joined: Thu Sep 25, 2008 10:39 am
Location: Washington DC

Zero bounds in models

Postby ashtongate » Wed Dec 15, 2010 11:22 am

Is there a way to impose a zero lower bound on an endogenous variable in a model? Would be very useful in the current environment...

startz
Non-normality and collinearity are NOT problems!
Posts: 3497
Joined: Wed Sep 17, 2008 2:25 pm

Re: Zero bounds in models

Postby startz » Wed Dec 15, 2010 11:35 am

You may be able to "fake it" by modelling log(endogenousVariable) and then exponentiating.

ashtongate
Posts: 21
Joined: Thu Sep 25, 2008 10:39 am
Location: Washington DC

Re: Zero bounds in models

Postby ashtongate » Wed Dec 15, 2010 11:40 am

Thanks. I had thought of that approach, should work in most circumstances. Still, would be nice to include inequalities etc.

startz
Non-normality and collinearity are NOT problems!
Posts: 3497
Joined: Wed Sep 17, 2008 2:25 pm

Re: Zero bounds in models

Postby startz » Wed Dec 15, 2010 12:15 pm

I agree with you. But optimization and model solution with inequalities is a lot harder than unconditional optimization.


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