ECON 702 Midterm: mq16ajg_greenwood_702
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This question tests your ability to write out matlab code as you used on your three assignments (and not any other computer language). Consider the following ar1 process z 0 = (cid:26)z +p(1 (cid:0) (cid:26)2)", where " (cid:24) n (0; (cid:27)): write out the matlab code to simulate this process for a random sample of n values for ". Your code should compute the mean, standard deviation, and coe cient of autocorrelation for the sample: a macroeconomist wants to approximate the ar1 process using a 3- state markov chain. The variable z is constrained to always lie in a time-invariant grid of 3 points so that z 2 f(cid:0)s; 0; sg. (a) the transition matrix for the markov chain, t , is given by. 5 ; where (cid:25)ij is the odds of going from state i to state j.
