Markov-chain approximations of vector autoregressions: Application of general multivariate-normal integration techniques
Discrete Markov chains are helpful for approximating vector autoregressive processes in computational work. We relax G. Tauchen (1986) [Finite state Markov-chain approximations to univariate and vector autoregressions. Economics Letters 20, 177-181] in practice using multivariate-normal integration techniques to allow for arbitrary positive-semidefinite covariance structures. Examples are provided for non-diagonal and singular non-diagonal error covariances.
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- Tauchen, George & Hussey, Robert, 1991. "Quadrature-Based Methods for Obtaining Approximate Solutions to Nonlinear Asset Pricing Models," Econometrica, Econometric Society, vol. 59(2), pages 371-396, March.
- Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, vol. 20(2), pages 177-181.