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Estimating the Smoothing Parameter in the So-Called Hodrick-Prescott Filter

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  • Schlicht, Ekkehart

Abstract

This note gives a fairly complete statistical description of the Hodrick-Prescott Filter (1997), originally proposed by Leser (1961). It builds on an approach to seasonal adjustment suggested by Leser (1963) and Schlicht (1981, 1984). A moments estimator for the smoothing parameter is proposed that is asymptotically equivalent to the maximum-likelihood estimator, has a straightforward intuitive interpretation and is more appropriate for short series than the maximum-likelihood estimator. The method is illustrated by an application and several simulations.

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Bibliographic Info

Paper provided by University of Munich, Department of Economics in its series Discussion Papers in Economics with number 304.

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Date of creation: Feb 2004
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Handle: RePEc:lmu:muenec:304

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Keywords: Hodrick-Prescott filter; Kalman filter; Kalman-Bucy; Whittaker-Henderson graduation; spline; state-space models; random walk; time-varying coefficients; adaptive estimation; time-series; seasonal adjustment; trend;

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References

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  1. Schlicht, Ekkehart & Ludsteck, Johannes, 2006. "Variance Estimation in a Random Coefficients Model," Discussion Papers in Economics 904, University of Munich, Department of Economics.
  2. 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.
  3. Schlicht, Ekkehart, . "Isolation and Aggregation in Economics," Monographs in Economics, University of Munich, Department of Economics, number 3, April.
  4. Schlicht, Ekkehart & Pauly, Ralf, 1982. "Descriptive Seasonal Adjustment by Minimizing Perturbations," Darmstadt Discussion Papers in Economics 39247, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute of Economics (VWL).
  5. Schlicht, Ekkehart, 1982. "Seasonal Adjustment in a Stochastic Model," Darmstadt Discussion Papers in Economics 38058, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute of Economics (VWL).
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Cited by:
  1. Göran Kauermann & Timo Teuber & Peter Flaschel, 2012. "Exploring US Business Cycles with Bivariate Loops Using Penalized Spline Regression," Computational Economics, Society for Computational Economics, vol. 39(4), pages 409-427, April.
  2. Baxa, Jaromír & Horváth, Roman & Vašíček, Bořek, 2013. "Time-varying monetary-policy rules and financial stress: Does financial instability matter for monetary policy?," Journal of Financial Stability, Elsevier, vol. 9(1), pages 117-138.
  3. Posch, Peter N., 2011. "Time to change. Rating changes and policy implications," Journal of Economic Behavior & Organization, Elsevier, vol. 80(3), pages 641-656.
  4. Partouche, H., 2007. "Time-Varying Coefficients in a GMM Framework: Estimation of a Forward Looking Taylor Rule for the Federal Reserve," Working papers 177, Banque de France.
  5. Dermoune Azzouz & Djehiche Boualem & Rahmania Nadji, 2009. "Multivariate Extension of the Hodrick-Prescott Filter-Optimality and Characterization," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 13(3), pages 1-35, May.
  6. Jaromír Baxa & Roman Horváth & Bořek Vašíček, 2010. "How Does Monetary Policy Change? Evidence on Inflation Targeting Countries," Working Papers IES 2010/26, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Oct 2010.
  7. David E. Giles & Chad N. Stroomer, 2004. "Identifying the Cycle of a Macroeconomic Time-Series Using Fuzzy Filtering," Econometrics Working Papers 0406, Department of Economics, University of Victoria.
  8. Metka Stare & Andreja Jaklič, 2011. "Towards Explaining Growth of Private and Public services in the Emerging Market Economies," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 13(30), pages 581-598, June.
  9. Itir Ozer & Ibrahim Ozkan, 2007. "Optimum filtering for optimum currency areas criteria," Economics Bulletin, AccessEcon, vol. 6(44), pages 1-18.
  10. David E. Giles, 2013. "Constructing confidence bands for the Hodrick--Prescott filter," Applied Economics Letters, Taylor & Francis Journals, vol. 20(5), pages 480-484, March.
  11. knani, ramzi & fredj, ali, 2010. "Mondialisation et fluctuations des cycles économiques
    [globalisation and business cycle fluctuation]
    ," MPRA Paper 22755, University Library of Munich, Germany.
  12. Miroslav Plašil, 2011. "Potential Product, Output Gap and Uncertainty Rate Associated with Their Determination while Using the Hodrick-Prescott Filter," Politická ekonomie, University of Economics, Prague, vol. 2011(4), pages 490-507.

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