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The Extended Hodrick-Prescott (HP) Filter for Spatial Regression Smoothing

  • Polasek, Wolfgang

    (Department of Economics and Finance, Institute for Advanced Studies, Vienna, Austria and University of Porto, Portugal)

The extended Hodrick-Prescott (HP) method was developed by Polasek (2011) for a class of data smoother based on second order smoothness. This paper develops a new extended HP smoothing model that can be applied for spatial smoothing problems. In Bayesian smoothing we need a linear regression model with a strong prior based on differencing matrices for the smoothness parameter and a weak prior for the regression part. We define a Bayesian spatial smoothing model with neighbors for each observation and we define a smoothness prior similar to the HP filter in time series. This opens a new approach to modelbased smoothers for time series and spatial models based on MCMC. We apply it to the NUTS-2 regions of the European Union for regional GDP and GDP per capita, where the fixed effects are removed by an extended HP smoothing model.

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File URL: http://www.ihs.ac.at/publications/eco/es-275.pdf
File Function: First version, 2011
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Paper provided by Institute for Advanced Studies in its series Economics Series with number 275.

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Length: 19 pages
Date of creation: Nov 2011
Date of revision:
Handle: RePEc:ihs:ihsesp:275
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  1. Polasek, Wolfgang & Sellner, Richard, 2011. "Does Globalization Affect Regional Growth? Evidence for NUTS-2 Regions in EU-27," Economics Series 266, Institute for Advanced Studies.
  2. King, Robert G. & Rebelo, Sergio T., 1993. "Low frequency filtering and real business cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 17(1-2), pages 207-231.
  3. Polasek, Wolfgang, 2011. "The Extended Hodrick-Prescott (HP) Filter for Spatial Regression Smoothing," Economics Series 275, Institute for Advanced Studies.
  4. Morten O. Ravn & Harald Uhlig, 2001. "On Adjusting the HP-Filter for the Frequency of Observations," CESifo Working Paper Series 479, CESifo Group Munich.
  5. Robert J. Hodrick & Edward Prescott, 1981. "Post-War U.S. Business Cycles: An Empirical Investigation," Discussion Papers 451, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. Wolfgang Polasek, 2011. "MCMC Estimation of Extended Hodrick-Prescott (HP) Filtering Models," Working Paper Series 25_11, The Rimini Centre for Economic Analysis.
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