New Keynesian Model: Zero-Lower-Bound and Optimal Monetary Policy in Dynare
Channel: Willi Mutschler
Date: 2021-06-29

This video is part of a series on the baseline New Keynesian model and its implementation in Dynare. In this video I will show you how to incorporate the Zero Lower Bound on nominal interest rates in the canonical New Keynesian model with Dynare. We’ll discuss why and how this has an adverse effect on welfare, and how optimal policy under discretion and commitment looks like. We’ll compare both cases in Dynare.

Slides, notes and codes: https://mutschler.eu/dynare/occassionally-binding-constraints/nk_video_zlb/

**Timestamps**
0:11 Introduction and scope

Canonical New Keynesian Model
2:21 Divine Coincidence
4:16 Introducing Zero-Lower-Bound on Nominal Interest Rate

Optimal Monetary Policy
5:45 under Discretion: theory
7:16 under Discretion: implementation in Dynare
11:25 under Commitment: theory
12:14 under Commitment: implementation in Dynare
14:20 Discretion vs Commitment

Conclusion
16:42 Remarks how to introduce occasionally binding constraints in Dynare
19:43 Summary