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Do the Hamilton and Beveridge–Nelson filters provide the same information about output gaps? An empirical comparison for practitioners

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  • Biolsi, Christopher

Abstract

I compare the empirical performances of the recently-developed Hamilton and Beveridge–Nelson filters of nonstationary time series, using quarterly data on real gross state product in U.S. states. There is meaningful overlap between the two filters, with average correlation coefficients ranging between 0.60 and 0.97. The Hamilton filter and its more recent modification produce cycles of greater volatility and amplitude than the Beveridge–Nelson filter and appear to outperform in pseudo-out-of-sample forecasting exercises of future GSP growth and inflation (though the outperformance is not generally statistically significant). The Beveridge–Nelson filter is, however, less sensitive to realizations of new data.

Suggested Citation

  • Biolsi, Christopher, 2023. "Do the Hamilton and Beveridge–Nelson filters provide the same information about output gaps? An empirical comparison for practitioners," Journal of Macroeconomics, Elsevier, vol. 75(C).
    • Handle: RePEc:eee:jmacro:v:75:y:2023:i:c:s0164070422000891
    DOI: 10.1016/j.jmacro.2022.103496
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    More about this item

    Keywords

    Hamilton filter; Beveridge–Nelson filter; Out-of-sample forecasts; Output gap;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E39 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Other

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