Matlab Codes for Approximating VAR Processes by Finite-State Markov Chains

The following list contains the key files associated with the Moment Matching Method in Gospodinov and Lkhagvasuren (2013), A Moment-Matching Method for Approximating VAR Processes by Finite-State Markov Chains, Journal of Applied Econometrics, 2014, Vol 29(5): 843–859.

  1. File var_Markov_MM.m is the main code of generating the grids and the transition matrix.
  2. File grids.mat is an 81-by-2 matrix containing the grids of (z, g) for N different states (9 grid points for each shock).
  3. File trans_matrix.mat is the 81-by-81 transition matrix associated with the 81 states. The column of the matrix corresponds to the current state and the rows are for the next state.
  4. File sampleshock.mat contains series of z and g shocks constructed by the method.