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Temporal aggregation, systematic sampling, and the Hodrick-Prescott filter

  • Maravall, A.
  • del Rio, A.

Maravall and del Río (2001), analized the time aggregation properties of the Hodrick-Prescott (HP) filter, which decomposes a time series into trend and cycle, for the case of annual, quarterly, and monthly data, and showed that aggregation of the disaggregate component cannot be obtained as the exact result from direct application of an HP filter to the aggregate series. The present paper shows how, using several criteria, one can find HP decompositions for different levels of aggregation that provide similar results. We use as the main criterion for aggregation the preservation of the period associated with the frequency for which the filter gain is ½; this criterion is intuitive and easy to apply. It is shown that the Ravn and Uhlig (2002) empirical rule turns out to be a first-order approximation to our criterion, and that alternative —more complex— criteria yield similar results. Moreover, the values of the parameter ? of the HP filter, that provide results that are approximately consistent under aggregation, are considerably robust with respect to the ARIMA model of the series. Aggregation is seen to work better for the case of temporal aggregation than for systematic sampling. Still a word of caution is made concerning the desirability of exact aggregation consistency. The paper concludes with a clarification having to do with the questionable spuriousness of the cycles obtained with HP filter.

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Article provided by Elsevier in its journal Computational Statistics & Data Analysis.

Volume (Year): 52 (2007)
Issue (Month): 2 (October)
Pages: 975-998

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Handle: RePEc:eee:csdana:v:52:y:2007:i:2:p:975-998
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