A Complete Model-Based Interpretation of the Hodrick-Prescott Filter: Spuriousness Reconsidered
The Hodrick-Prescott filter applied to seasonally adjusted series has become a paradigm for business-cycle estimation at many economic agencies and institutions. We show that the filter can be obtained from MMSE estimation of the components in an unobserved component model, where the original series is decomposed into (long-term) trend, cyclical, seasonal, and (highlytransitory) irregular components. The component models are sensible and combine desirable “ad-hoc” features with series-dependent features that guarantee consistency with the data. The model-based framework provides improvements having to do with the precision of end-point estimation and the stability of the cyclical signal.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kydland, Finn E & Prescott, Edward C, 1982.
"Time to Build and Aggregate Fluctuations,"
Econometric Society, vol. 50(6), pages 1345-70, November.
- Finn E. Kydland & Edward C. Prescott, 1982. "Executable program for "Time to Build and Aggregate Fluctuations"," QM&RBC Codes 4, Quantitative Macroeconomics & Real Business Cycles.
- Finn E. Kydland & Edward C. Prescott, 1982. "Web interface for "Time to Build and Aggregate Fluctuations"," QM&RBC Codes 4a, Quantitative Macroeconomics & Real Business Cycles.
- Harvey, A C & Jaeger, A, 1993. "Detrending, Stylized Facts and the Business Cycle," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(3), pages 231-47, July-Sept.
- Agustín Maravall & Ana del Río, 2001. "Time Aggregation and the Hodrick-Prescott Filter," Banco de Espa�a Working Papers 0108, Banco de Espa�a.
- Agustín Maravall, 1996. "Unobserved Components in Economic Time Series," Banco de Espa�a Working Papers 9609, Banco de Espa�a.
- Harvey, Andrew, 1997. "Trends, Cycles and Autoregressions," Economic Journal, Royal Economic Society, vol. 107(440), pages 192-201, January.
- Claude Giorno & Pete Richardson & Deborah Roseveare & Paul van den Noord, 1995. "Estimating Potential Output, Output Gaps and Structural Budget Balances," OECD Economics Department Working Papers 152, OECD Publishing.
- David A. Pierce, 1978. "Seasonal adjustment when both deterministic and stochastic seasonality are present," Special Studies Papers 107, Board of Governors of the Federal Reserve System (U.S.).
- Víctor Gómez & Pilar Bengoechea, 2000. "The quarterly national accounts trend-cycle filter versus model-based filters," Spanish Economic Review, Springer, vol. 2(1), pages 29-48.
- Gomez, Victor, 1999. "Three Equivalent Methods for Filtering Finite Nonstationary Time Series," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(1), pages 109-16, January.
- King, R.G. & Rebelo, S.T., 1989.
"Low Frequency Filtering And Real Business Cycles,"
RCER Working Papers
205, University of Rochester - Center for Economic Research (RCER).
- Timothy Cogley & James M. Nason, 1993.
"Effects of the Hodrick-Prescott filter on trend and difference stationary time series: implications for business cycle research,"
Working Papers in Applied Economic Theory
93-01, Federal Reserve Bank of San Francisco.
- Cogley, Timothy & Nason, James M., 1995. "Effects of the Hodrick-Prescott filter on trend and difference stationary time series Implications for business cycle research," Journal of Economic Dynamics and Control, Elsevier, vol. 19(1-2), pages 253-278.
- David A. Pierce, 1978. "Seasonal Adjustment When Both Deterministic and Stochastic Seasonality Are Present," NBER Chapters, in: Seasonal Analysis of Economic Time Series, pages 242-280 National Bureau of Economic Research, Inc.
- Maravall, Agustin, 1985. "On Structural Time Series Models and the Characterization of Components," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(4), pages 350-55, October.
- Regina Kaiser & Agustín Maravall, 1999.
"Estimation of the Business Cycle: a Modified Hodrick-Prescott Filter,"
Banco de Espa�a Working Papers
9912, Banco de Espa�a.
- Regina Kaiser & Agustín Maravall, 1999. "Estimation of the business cycle: A modified Hodrick-Prescott filter," Spanish Economic Review, Springer, vol. 1(2), pages 175-206.
- Pierce, David A., 1980. "Data revisions with moving average seasonal adjustment procedures," Journal of Econometrics, Elsevier, vol. 14(1), pages 95-114, September.
- Gomez, Victor, 2001. "The Use of Butterworth Filters for Trend and Cycle Estimation in Economic Time Series," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(3), pages 365-73, July.
When requesting a correction, please mention this item's handle: RePEc:bde:wpaper:0208. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mar�a Beiro. Electronic Dissemination of Information Unit. Research Department. Banco de Espa�a)
If references are entirely missing, you can add them using this form.