Transition between states


This is the first time I use Dynare and I have a question, which probably will appear trivial for most of users.

In my model, I have only 2 states determined by the level of aggregate productivity. When the aggregate productivity is high, the state is called “expansion” and there is a probability of 4/5 to stay in the same state next period and a probability of 1/5 to fall in the low aggregate productivity state, called “recession”. When the economy is in “recession”, a probability 1/5 to stay in recession next period and 4/5 to jump in “expansion”.

I just want to know what command I have to use to describe this kind of transitions between states.

Thanks in advance

Dynare most probably won’t help you with this problem, because the perturbation techniques it uses assume that everything is continuous in order to do a Taylor approximation, while your shock process is discrete. Or are you talking about a MS-VAR? Note that MS-DSGE models are not implemented yet.