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Restricted Hodrick–Prescott filtering in a state-space framework

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  • Kristian Jönsson

    (National Institute of Economic Research)

Abstract

The current paper extends previous results on Hodrick–Prescott (HP) filtering and shows that it is possible to implement the judgement-augmented, or restricted, HP filter within the state-space framework. The implementation entails augmenting the vector of measurements and altering one of the system matrices of the state-space model for the HP filter. Restrictions can thereby be incorporated in the HP filter, making, e.g., estimation more accessible. An application to US GDP gap estimation illustrates how the restricted filter could be usefully applied in an empirical macroeconomic setting.

Suggested Citation

  • Kristian Jönsson, 2017. "Restricted Hodrick–Prescott filtering in a state-space framework," Empirical Economics, Springer, vol. 53(3), pages 1243-1251, November.
    • Handle: RePEc:spr:empeco:v:53:y:2017:i:3:d:10.1007_s00181-016-1139-8
    DOI: 10.1007/s00181-016-1139-8
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    References listed on IDEAS

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    1. Mohr, Matthias, 2005. "A trend-cycle(-season) filter," Working Paper Series 499, European Central Bank.
    2. Harvey,Andrew & Koopman,Siem Jan & Shephard,Neil (ed.), 2004. "State Space and Unobserved Component Models," Cambridge Books, Cambridge University Press, number 9780521835954.
    3. Trivellore Raghunathan, 2003. "An Approximate Test for Homogeneity of Correlated Correlation Coefficients," Quality & Quantity: International Journal of Methodology, Springer, vol. 37(1), pages 99-110, February.
    4. Matthias Mohr, 2005. "A Trend-Cycle(-Season) Filter," Econometrics 0508004, University Library of Munich, Germany.
    5. Harvey, Andrew C. & Delle Monache, Davide, 2009. "Computing the mean square error of unobserved components extracted by misspecified time series models," Journal of Economic Dynamics and Control, Elsevier, vol. 33(2), pages 283-295, February.
    6. Doran, Howard E, 1992. "Constraining Kalman Filter and Smoothing Estimates to Satisfy Time-Varying Restrictions," The Review of Economics and Statistics, MIT Press, vol. 74(3), pages 568-572, August.
    7. Kosei Fukuda, 2010. "Three new empirical perspectives on the Hodrick–Prescott parameter," Empirical Economics, Springer, vol. 39(3), pages 713-731, December.
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    Cited by:

    1. Kristian Jönsson, 2018. "Extending the state-space representation of the judgement-augmented Hodrick-Prescott filter," Economics Bulletin, AccessEcon, vol. 38(1), pages 623-628.

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    More about this item

    Keywords

    Trend/cycle decomposition; Output gap; Judgement; State-space models;
    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
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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