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Zero bounds in models

Posted: Wed Dec 15, 2010 11:22 am
by ashtongate
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...

Re: Zero bounds in models

Posted: Wed Dec 15, 2010 11:35 am
by startz
You may be able to "fake it" by modelling log(endogenousVariable) and then exponentiating.

Re: Zero bounds in models

Posted: Wed Dec 15, 2010 11:40 am
by ashtongate
Thanks. I had thought of that approach, should work in most circumstances. Still, would be nice to include inequalities etc.

Re: Zero bounds in models

Posted: Wed Dec 15, 2010 12:15 pm
by startz
I agree with you. But optimization and model solution with inequalities is a lot harder than unconditional optimization.