Simulating DSGE with Markov switching process

General DSGE Modeling
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  1. Dynare does not support Markov-Switching DSGE models yet. But it seems you are confusing a Markov process for an exogenous variable (essentially a discretized version of a continuous distribution used as a numerical trick) with a true Markov switching process. For a stochastic volatility process there is no reason to use a discrete Markov process if you solve the model with perturbation. Take a look at the replication files of Born/Pfeifer (2014): “Risk Matters: A comment” at sites.google.com/site/pfeiferecon/20140525_replication_codes.zip?attredirects=0 for a SV process. Bloom usually uses global solution techniques that require a discretized version.
  2. See [Markov-Switching Models (DSGE; BVAR...))
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