Brzoza-Brzezina, Michal
[Verfasser:in]
;
Kolasa, Marcin
[Sonstige Person, Familie und Körperschaft];
Makarski, Krzysztof
[Sonstige Person, Familie und Körperschaft]
A Penalty Function Approach to Occasionally Binding Credit Constraints
Anmerkungen:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments October 31, 2013 erstellt
Beschreibung:
Occasionally binding credit constraints (OBC) have recently been explored as a promising way of modeling financial frictions. However, given their highly non-linear nature, most of the literature has concentrated on small models that can be solved using global methods. In this paper, we investigate the workings of OBC introduced via a smooth penalty function.This allows us to move towards richer models that can be used for policy analysis. Our simulations show that in a deterministic setting the OBC approach delivers welcome features, like asymmetry and non-linearity in reaction to shocks. However, feasible local approximations, necessary to generate stochastic simulations, suffer from fatal shortcomings that make their practical application questionable