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Assesing HP Filter Performance for Argentina and U.S. Macro Aggregates

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  • Hildegart Ahumada

    (Instituto and Universidad T. Di Tella - UNLP)

  • María Lorena Garegnani

    (Universidad Nacional de La Plata)

Abstract

Hodrick-Prescott filter has been the favourite empirical technique among researchers studying "cycles". Software facilities and the optimality criterion, from which the filter can be derived, can explain its wide use. However, different shortcomings and drawbacks have been pointed out in the literature, as alteration of variability and persistence and detecting spurious cycles and correlations. This paper discusses these criticisms from an empirical point of view trying to clarify what the filter can and cannot do. In particular, a less mechanical use for descriptive analysis is proposed: testing how the estimated cyclical component behaves and using autocorrelation adjusted standard errors to evaluate cross correlations to differentiate the "genuine" from "spurious" case. Simulation results to test these bivariate correlations when there is a "genuine" relationship are presented. Some examples of descriptive analysis for macro aggregates (real activity, trade flows and money) of Argentina and USA are reported to show that not always the filter is appropriate. Simple tools are used to appreciate how the filtered series result and to evaluate cross correlations.

Suggested Citation

  • Hildegart Ahumada & María Lorena Garegnani, 2000. "Assesing HP Filter Performance for Argentina and U.S. Macro Aggregates," Journal of Applied Economics, Universidad del CEMA, vol. 3, pages 257-284, November.
  • Handle: RePEc:cem:jaecon:v:3:y:2000:n:2:p:257-284
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    References listed on IDEAS

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    1. Prescott, Edward C., 1986. "Theory ahead of business-cycle measurement," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 25(1), pages 11-44, January.
    2. Canova, Fabio, 1998. "Detrending and business cycle facts," Journal of Monetary Economics, Elsevier, vol. 41(3), pages 475-512, May.
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    Cited by:

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    3. José Luis Arrufat & Alberto Martín Díaz Cafferata & José Antonio Viceconte, 2011. "Terms of trade cycles in extreme land abundant countries, 1870-2009. Spectral analysis," Working Papers 05/11, Instituto Universitario de Análisis Económico y Social.
    4. María Virginia Mattheus & Alberto Martín Díaz Cafferata, 2011. "Co-movements in terms of trade volatility in land-abundant countries," Working Papers 07/11, Instituto Universitario de Análisis Económico y Social.
    5. Xie, Xiang-xiang & Zhang, An-lu & Cai, Yin-ying & Zhang, Yu, 2020. "How government-led land consolidation efforts achieve grain production stability? An empirical analysis in Hubei Province, China," Land Use Policy, Elsevier, vol. 97(C).

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    More about this item

    Keywords

    HP filter; cycles; spurious cycles; genuine cross correlation;
    All these keywords.

    JEL classification:

    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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