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A Trend-Cycle(-Season) Filter

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  • Matthias Mohr

    (European Central Bank)

Abstract

This paper proposes a new univariate method to decompose a time series into a trend, a cyclical and a seasonal component: the Trend-Cycle filter (TC filter) and its extension, the Trend-Cycle-Season filter (TCS filter). They can be regarded as extensions of the Hodrick-Prescott filter (HP filter). In particular, the stochastic model of the HP filter is extended by explicit models for the cyclical and the seasonal component. The introduction of a stochastic cycle improves the filter in three respects: first, trend and cyclical components are more consistent with the underlying theoretical model of the filter. Second, the end-of- sample reliability of the trend estimates and the cyclical component is improved compared to the HP filter since the pro-cyclical bias in end- of-sample trend estimates is virtually removed. Finally, structural breaks in the original time series can be easily accounted for.

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Bibliographic Info

Paper provided by EconWPA in its series Econometrics with number 0508004.

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Length: 44 pages
Date of creation: 03 Aug 2005
Date of revision:
Handle: RePEc:wpa:wuwpem:0508004

Note: Type of Document - pdf; pages: 44
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Web page: http://128.118.178.162

Related research

Keywords: economic cycles; time series; filtering; trend-cycle decomposition; seasonality;

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References

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  1. Giovanni Lombardo & Alan Sutherland, 2005. " Computing Second-Order-Accurate Solutions for Rational Expectation Models Using Linear Solution Methods," CDMA Conference Paper Series 0504, Centre for Dynamic Macroeconomic Analysis.
  2. Marco Del Negro & Frank Schorfheide, 2007. "Monetary Policy Analysis with Potentially Misspecified Models," NBER Working Papers 13099, National Bureau of Economic Research, Inc.
  3. Gruener Hans Peter & Hayo Bernd & Hefeker Carsten, 2009. "Unions, Wage Setting and Monetary Policy Uncertainty," The B.E. Journal of Macroeconomics, De Gruyter, vol. 9(1), pages 1-25, October.
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  14. David Gruen & Tim Robinson & Andrew Stone, 2002. "Output Gaps in Real Time: Are They Reliable Enough to Use for Monetary Policy?," RBA Research Discussion Papers rdp2002-06, Reserve Bank of Australia.
  15. Cogley, Timothy & Nason, James M., 1995. "Effects of the Hodrick-Prescott filter on trend and difference stationary time series Implications for business cycle research," Journal of Economic Dynamics and Control, Elsevier, vol. 19(1-2), pages 253-278.
  16. Kolasa, Marcin, 2005. "What drives productivity growth in the new EU member states? The case of Poland," Working Paper Series 0486, European Central Bank.
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Cited by:
  1. Golinelli, Roberto & Momigliano, Sandro, 2006. "Real-time determinants of fiscal policies in the euro area," Journal of Policy Modeling, Elsevier, vol. 28(9), pages 943-964, December.
  2. Roberto Golinelli & Sandro Momigliano, 2006. "Real-time determinants of fiscal policies in the euro area: Fiscal rules, cyclical conditions and elections," Temi di discussione (Economic working papers) 609, Bank of Italy, Economic Research and International Relations Area.
  3. Destefanis, Sergio & Mastromatteo, Giuseppe, 2012. "Assessing the reassessment: A panel analysis of the Lisbon Strategy," Economics Letters, Elsevier, vol. 115(2), pages 148-151.
  4. Ard den Reijer, 2006. "The Dutch business cycle: which indicators should we monitor?," DNB Working Papers 100, Netherlands Central Bank, Research Department.

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