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Is "The ideal filter" really Ideal: The usage of Frequency Filtering and Spurious Cycles

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  • Lyubomir Ivanov

    (Tsenov Academy of Economics)

Abstract

In this paper the filter of Hodrick and Prescott, the band-pass filter of Baxter and King, "the ideal filter" and the first-differencing are analyzed. It is shown that ideal filters are able to produce spurious cycles not only when a unit root is present in the data but also when the root is less than unity. The main critiques of first-differencing are outlined and further analyzed. The conclusion is that differencing and more generally methods in conformity with the underlying properties of non-stationary series are the preferable choice. At the same time the application of ideal filters and their approximations (including HP and BP) is very dangerous and their usage is to be avoided.

Suggested Citation

  • Lyubomir Ivanov, 2005. "Is "The ideal filter" really Ideal: The usage of Frequency Filtering and Spurious Cycles," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 3(1), pages 79-96.
    • Handle: RePEc:seb:journl:v:3:y:2005:i:1:p:79-96
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    References listed on IDEAS

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    Cited by:

    1. Pollock D. S. G., 2013. "Cycles, Syllogisms and Semantics: Examining the Idea of Spurious Cycles," Journal of Time Series Econometrics, De Gruyter, vol. 6(1), pages 81-102, September.

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    More about this item

    Keywords

    Frequency filtering; Hodrick-Prescott filter; Band-Pass Filter; Spurious Cycles;
    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

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