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The Holt–Winters filter and the one-sided HP filter: A close correspondence

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  • Alfaro, Rodrigo
  • Drehmann, Mathias

Abstract

We show that the trend of the one-sided HP filter can be asymptotically approximated by the Holt–Winters (HW) filter. The latter is an elegant, moving average representation and facilitates the computation of trends tremendously. We confirm the accuracy of this approximation empirically by comparing the one-sided HP filter with the HW filter for generating credit-to-GDP gaps. We find negligible differences, most of them concentrated at the beginning of the sample.

Suggested Citation

  • Alfaro, Rodrigo & Drehmann, Mathias, 2023. "The Holt–Winters filter and the one-sided HP filter: A close correspondence," Economics Letters, Elsevier, vol. 222(C).
    • Handle: RePEc:eee:ecolet:v:222:y:2023:i:c:s0165176522003998
    DOI: 10.1016/j.econlet.2022.110925
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    References listed on IDEAS

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    1. 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.
    2. Claudio Borio & Philip Lowe, 2002. "Assessing the risk of banking crises," BIS Quarterly Review, Bank for International Settlements, December.
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    More about this item

    Keywords

    HP filter; Holt–Winters filter; Credit cycle;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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