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A Toolkit for Solving Models with a Lower Bound on Interest Rates of Stochastic Duration
[report]
2020
unpublished
This paper presents a toolkit to solve for equilibrium in economies with the effective lower bound (ELB) on the nominal interest rate in a computationally efficient way under a special assumption about the underlying shock process, a two-state Markov process with an absorbing state. We illustrate the algorithm in the canonical New Keynesian model, replicating the optimal monetary policy in Eggertsson and Woodford (2003) , as well as showing how the toolkit can be used to analyse the
doi:10.3386/w27878
fatcat:433d5ikheffdrp7oon5hjrfhce