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MCMC Estimation of Extended Hodrick-Prescott (HP) Filtering Models

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  • Wolfgang Polasek

    ()
    (Vienna Institute for Advanced Studies)

Abstract

The Hodrick-Prescott (HP) method was originally developed to smooth time series, i.e. to get a smooth (long-term) component. We show that the HP smoother can be viewed as a Bayesian linear model with a strong prior for the smoothness component. Extending this Bayesian approach in a linear model set-up is possible with a conjugate and a nonconjugate model using MCMC. The Bayesian HP smoothing model is also extended to a spatial smoothing model. We have to define spatial neighbors for each observation and we can in a similar way use a smoothness prior as for the HP filter in time series. The new smoothing approaches are applied to the (textbook) airline passenger data for time series and to the problem of smoothing spatial regional data. This new approach can be used for a new class of model-based smoothers for time series and spatial models.

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Bibliographic Info

Article provided by European Association Comenius - EACO in its journal DANUBE: Law and Economics Review.

Volume (Year): (2012)
Issue (Month): 1 (March)
Pages: 25-52

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Handle: RePEc:cmn:journl:y:2012:i:1:p:25-52

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Web page: http://www.eaco.eu

Related research

Keywords: Hodrick-Prescott (HP) Smoothers; Spatial Econometrics; MCMCEstimation; Airline Passenger Time Series; Spatial Smoothing of Regional Data;

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  1. Blackburn, Keith & Ravn, Morten O, 1992. "Business Cycles in the United Kingdom: Facts and Fictions," Economica, London School of Economics and Political Science, vol. 59(236), pages 383-401, November.
  2. Wolfgang Polasek, 2012. "MCMC Estimation of Extended Hodrick-Prescott (HP) Filtering Models," DANUBE: Law and Economics Review, European Association Comenius - EACO, issue 1, pages 25-52, March.
  3. Danthine, Jean-Pierre & Girardin, Michel, 1989. "Business cycles in Switzerland : A comparative study," European Economic Review, Elsevier, vol. 33(1), pages 31-50, January.
  4. Polasek, Wolfgang & Sellner, Richard, 2011. "Does Globalization Affect Regional Growth? Evidence for NUTS-2 Regions in EU-27," Economics Series 266, Institute for Advanced Studies.
  5. Ravn, Morten O., 1997. "International business cycles in theory and in practice," Journal of International Money and Finance, Elsevier, vol. 16(2), pages 255-283, April.
  6. Uhlig, H.F.H.V.S. & Ravn, M., 1997. "On Adjusting the H-P Filter for the Frequency of Observations," Discussion Paper 1997-50, Tilburg University, Center for Economic Research.
  7. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
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Cited by:
  1. Wolfgang Polasek, 2011. "MCMC Estimation of Extended Hodrick-Prescott (HP) Filtering Models," Working Paper Series 25_11, The Rimini Centre for Economic Analysis.
  2. Polasek, Wolfgang, 2011. "The Extended Hodrick-Prescott (HP) Filter for Spatial Regression Smoothing," Economics Series 275, Institute for Advanced Studies.
  3. Polasek, Wolfgang, 2011. "The Hodrick-Prescott (HP) Filter as a Bayesian Regression Model," Economics Series 277, Institute for Advanced Studies.

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