Imposition of zero lower boundary in endogenous variable

[dino55]

Hi
I'm wondering whether there is a easy way to establish a zero lower boundary in an endogenous model
variable, e.g. interest rates cannot go below zero?
I tried to work in the equation with the function @recode, but I always got an error message.
Thanks for any hints.

[startz]

Hi
I'm wondering whether there is a easy way to establish a zero lower boundary in an endogenous model
variable, e.g. interest rates cannot go below zero?
I tried to work in the equation with the function @recode, but I always got an error message.
Thanks for any hints.

For some purposes you might try modeling log(y).

[jlbrillet]

Hello,

You could add an equation creating a new variable x as :

x = y *(y>0)

and use x as the endogenous.

Take care,

Jean Louis Brillet.

Actually, the problem is when your model uses the logarithm of the variable. In this case it needs to be strictly positive, and probably different enough from zero (to avoid large derivatives). The problem lies with the "enough".

[startz]

Hello,

You could add an equation creating a new variable x as :

x = y *(y>0)

and use x as the endogenous.

Take care,

Jean Louis Brillet.

Actually, the problem is when your model uses the logarithm of the variable. In this case it needs to be strictly positive, and probably different enough from zero (to avoid large derivatives). The problem lies with the "enough".

If you do this, you may need to think about estimation with a Tobit rather than a standard regression model.

[jlbrillet]

I thought you meant in a model identity. Of course if the equation was estimated the problem is different.

But if you want the variable to be positive it is probably that it should be so by nature (like the nominal interst rate, or GDP), which means it is positive on the sample period.