Torben Mark Pedersen (University of Copenhagen Institute of Economics)
Abstract
The main contribution of this paper is the construction of a metric based on optimal filtering for measuring the distortionary effect of filters. The Hodrick-Prescott filter (HP-filter) has been critizised for inducing spurious cycles when filtering macroeconomic time series with the "typical spectral shape", the so-called Slutzky-effect. It is shown that the HP-filter is not subject to that critique and that the Slutzky-effect is a special case of a more general pattern of distortions of filters. Based on the theory of optimal filtering, we derive a frequency domain measure of the size of distortions when defining business cycles as cycles with a period less than a prespecified number of years. The metric is used for two purposes. First, to determine the optimal value of the smoothing parameter in the HP-filter. Secondly, to measure the size of distortions of ten filters including a new Hodrick-Prescott based band pass filter. The main conclusions are that the standard value of the smoothing parameter of the HP-filter, = 1600, is close to being the optimal value when filtering near-integrated time series and that the HP-filter is less distorting than any of the other filters studied.
Download Info
To our knowledge, this item is not available for
download. To find whether it is available, there are three
options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page
whether it is in fact available.
3. Perform a search for a similarly titled item that would be
available.
Publisher Info
Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number
98-09.
Length: 17 pages Date of creation: Jun 1998 Date of revision: Publication status: Published in: Journal Econ Dynamics & Control 25(8) 2001, 1081-1101 Handle: RePEc:kud:kuiedp:9809
Contact details of provider: Postal: Øster Farimagsgade 5, Building 26, DK-1353 Copenhagen K., Denmark Phone: (+45) 35 32 26 26 Fax: +45 35 32 30 00 Web page: http://www.econ.ku.dk More information through EDIRC
Order Information: Email:
For technical questions regarding this item, or to correct its listing, contact: (Henriette Aabo Hansen).
Find related papers by JEL classification: E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)
Did you know? Citation analysis on IDEAS includes online papers that are freely accessible and whose text could be automatically analyzed, currently about 210000 papers.