English, Article, Journal or magazine article edition: Finite State Markov-Chain Approximations to Highly Persistent Processes Karen A. Kopecky; Richard M. H. Suen

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Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Finite State Markov-Chain Approximations to Highly Persistent Processes
Author
  • Karen A. Kopecky
  • Richard M. H. Suen
Physical Description
  • preprint
Notes
  • This paper re-examines the Rouwenhorst method of approximating first-order autoregressive processes. This method is appealing because it can match the conditional and unconditional mean, the conditional and unconditional variance and the first-order autocorrelation of any AR(1) process. This paper provides the first formal proof of this and other results. When comparing to five other methods, the Rouwenhorst method has the best performance in approximating the business cycle moments generated by the stochastic growth model. It is shown that, equipped with the Rouwenhorst method, an alternative approach to generating these moments has a higher degree of accuracy than the simulation method.
  • Numerical Methods, Finite State Approximations, Optimal Growth Model
  • RePEc:ucr:wpaper:200904
Language
  • English
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