This function generates a matrix of transition probabilites of a finite-state Markov chain that mimics an AR(1) process with persistence parameter llamda, standard deviation ssigma and a fixed parameter m.
Usage
Rtauchen(ne, ssigma_eps, llambda_eps, m)
Arguments
ne
Number of points of the grid of the finite-state Markov chain that mimics the AR(1) process
ssigma_eps
Standard deviation of exogenous shock in the AR(1) process
llambda_eps
Persistence parameter of the AR(1) process
m
Tauchen parameter for the width of the process (number of standard deviations of the AR(1) process covered by the grid)
Value
A matrix with the corresponding to the transition matrix of the finite-state Markov chain that approximates the AR(1) process