IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Discretization of Highly-Persistent Correlated AR(1) Shocks

The finite state Markov-Chain approximation method developed by Tauchen (1986) and Tauchen and Hussey (1991) is widely used in economics, finance and econometrics in solving for functional equations where state variables follow an autoregressive process. For highly persistent processes, the method requires a large number of discrete values for the state variables to produce close approximations which leads to an undesirable reduction in computational speed, especially in multidimensional case. This paper proposes an alternative method of discretizing vector autoregressions. The method works well as an approximation and its numerical efficiency applies to a wide range of the parameter space.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://sites.google.com/site/dlkhagva/paper_on_999.pdf?attredirects=0
Download Restriction: no

Paper provided by Concordia University, Department of Economics in its series Working Papers with number 08012.

as
in new window

Length: 35 pages
Date of creation: Sep 2008
Date of revision: Nov 2008
Handle: RePEc:crd:wpaper:08012
Contact details of provider: Postal: 1455, de Maisonneuve Blvd, Montréal, Québec, H3G 1M8
Phone: (514) 848-3900
Fax: (514) 848-4536
Web page: http://economics.concordia.ca

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Terry, Stephen J. & Knotek II, Edward S., 2011. "Markov-chain approximations of vector autoregressions: Application of general multivariate-normal integration techniques," Economics Letters, Elsevier, vol. 110(1), pages 4-6, January.
  2. Kopecky, Karen A. & Suen, Richard M. H., 2009. "Finite State Markov-Chain Approximations to Highly Persistent Processes," MPRA Paper 15122, University Library of Munich, Germany.
  3. Floden, Martin, 2007. "A Note on the Accuracy of Markov-Chain Approximations to Highly Persistent AR(1)-Processes," SSE/EFI Working Paper Series in Economics and Finance 656, Stockholm School of Economics.
  4. Tauchen, George & Hussey, Robert, 1991. "Quadrature-Based Methods for Obtaining Approximate Solutions to Nonlinear Asset Pricing Models," Econometrica, Econometric Society, vol. 59(2), pages 371-96, March.
  5. Dale T. Mortensen & Christopher A. Pissarides, 1993. "Job Creation and Job Destruction in the Theory of Unemployment," CEP Discussion Papers dp0110, Centre for Economic Performance, LSE.
  6. Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, vol. 20(2), pages 177-181.
  7. Lu Zhang, 2005. "The Value Premium," Journal of Finance, American Finance Association, vol. 60(1), pages 67-103, 02.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:crd:wpaper:08012. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Economics Department)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.