The HP-Filter in Cross-Country Comparisons
Many empirical studies have applied the Hodrick-Prescott filter in cross-country comparisons of business cycle fluctuations. The Hodrick-Prescott filter involves the smoothing parameter l, and standard practice in the literature is to set this parameter equal to 1600 (in quarterly data) for all countries. We show that this choice might distort the results when the cyclical component is highly serially correlated, and that care should be taken in checking if the results are unreasonable in the light of common wisdom. For example, for Spanish data we show that, contrary to conventional wisdom, the results imply that the Spanish cycle is very smooth and that the period of 1975-85 was one of macroeconomic tranquility. We propose to recast the HP-filter as a constrained minimization problem, which selects endogenously a value of l that imposes cross-country consistency of the imposed constraint. Our proposed method is easy to apply and retains all the virtues of the standard HP-filter. When applied to Spanish data, the results imply a return to conventional wisdom and we find results in line with economic historian’s views. We also examine data for a number of OECD countries and find that, with the exception of Spain, Italy and Japan, the standard choice of l = 1600 is sensible.
|Date of creation:||Feb 2004|
|Contact details of provider:|| Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.|
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
References listed on IDEAS
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.:
- David K. Backus & Patrick J. Kehoe, 1992.
"International Evidence on the Historical Properties of Business Cycles,"
92-5, New York University, Leonard N. Stern School of Business, Department of Economics.
- Backus, David K & Kehoe, Patrick J, 1992. "International Evidence of the Historical Properties of Business Cycles," American Economic Review, American Economic Association, vol. 82(4), pages 864-888, September.
- David K. Backus & Patrick J. Kehoe, 1991. "International evidence on the historical properties of business cycles," Staff Report 145, Federal Reserve Bank of Minneapolis.
- Ambler, S. & Cardia, E. & Zimmermann, C., 2000.
"International Business Cycles: What Are the Facts?,"
Cahiers de recherche
2000-05, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
- Ambler, Steve & Cardia, Emanuela & Zimmermann, Christian, 2004. "International business cycles: What are the facts?," Journal of Monetary Economics, Elsevier, vol. 51(2), pages 257-276, March.
- Steve Ambler & Emanuela Cardia & Christian Zimmermann, 1999. "International Business Cycles: What are the Facts?," Cahiers de recherche CREFE / CREFE Working Papers 90, CREFE, Université du Québec à Montréal.
- AMBLER, Steve & CARDIA, Emanuela & ZIMMERMANN, Christian, 2000. "International Business Cycles: What Are the Facts?," Cahiers de recherche 2000-05, Universite de Montreal, Departement de sciences economiques.
- David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1987.
"International real business cycles,"
426, Federal Reserve Bank of Minneapolis.
- Ravn, Morten O & Uhlig, Harald, 2001.
"On Adjusting the HP-Filter for the Frequency of Observations,"
CEPR Discussion Papers
2858, C.E.P.R. Discussion Papers.
- Morten O. Ravn & Harald Uhlig, 2001. "On Adjusting the HP-Filter for the Frequency of Observations," CESifo Working Paper Series 479, CESifo Group Munich.
- Uhlig, H.F.H.V.S. & Ravn, M., 1997. "On Adjusting the H-P Filter for the Frequency of Observations," Discussion Paper 1997-50, Tilburg University, Center for Economic Research.
- Luis A. Puch & Omar Licandro, 1997.
"Are there any special features in the Spanish business cycle?,"
Fundación SEPI, vol. 21(2), pages 361-394, May.
- Luis Puch & Omar Licandro, "undated". "Are there any special features in the Spanish business cycles?," Working Papers 97-06, FEDEA.
- Marianne Baxter & Robert G. King, 1995.
"Measuring Business Cycles Approximate Band-Pass Filters for Economic Time Series,"
NBER Working Papers
5022, National Bureau of Economic Research, Inc.
- Marianne Baxter & Robert G. King, 1999. "Measuring Business Cycles: Approximate Band-Pass Filters For Economic Time Series," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 575-593, November.
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:4244. 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: ()
If references are entirely missing, you can add them using this form.