function [chain,state] = simulate_markov(x,P,pi0,T);
%% x = the quantity corresponding to each state, typical element x(i)
%% P = Markov transition matrix, typical element p(i,j) i,j=1,...n
%% pi0 = probability distribution over initial state
%% T = number of periods to simulate
%%
%% chain = sequence of realizations from the simulation
%% Modification of progam by L&S.
n = length(x); %% what is the size of the state vector?
E = rand(T,1); %% T-vector of draws from independent uniform [0,1]
cumsumP = P*triu(ones(size(P)));
%% creates a matrix whose rows are the cumulative sums of
%% the rows of P
%%%%% SET INITIAL STATE USING pi0
E0 = rand(1,1);
ppi0 = [0,cumsum(pi0)];
s0 = ((E0<=ppi0(2:n+1)).*(E0>ppi0(1:n)))';
s = s0;
%%%%% ITERATE ON THE CHAIN
for t=1:T,
state(:,t) = s;
ppi = [0,s'*cumsumP];
s = ((E(t)<=ppi(2:n+1)).*(E(t)>ppi(1:n)))';
end
chain = x'*state;