Dear all,
I have a problem setting up my model with a ZLB constraint on interest rates. If I run a deterministic simulation without constraints there is an initial drop of the interest rate to -3%. When I implement it with the ZLB there is a warning:
Warning: Matrix is singular to working precision.
> In sim1 at 133
In simul at 108
In real_only_g_ZLB at 248
In dynare at 120
When I manually set the interest rate in the first period to 0 the algorithm converges and the ZLB is not binding anymore. I am wondering whether it is more likely that my ZLB-implementation is wrong or that there is only a solution if either the initial interest rate is negative or manually set to zero.
I appreciate any comments! Best, Palu