IDEAS home Printed from https://ideas.repec.org/p/kud/kuiedp/9809.html
   My bibliography  Save this paper

The Hodrick-Prescott Filter, the Slutzky Effect, and the Distortionary Effect of Filters

Author

Listed:
  • Torben Mark Pedersen

    (University of Copenhagen Institute of Economics)

Abstract

The main contribution of this paper is the construction of a metric based on optimal filtering for measuring the distortionary effect of filters. The Hodrick-Prescott filter (HP-filter) has been critizised for inducing spurious cycles when filtering macroeconomic time series with the "typical spectral shape", the so-called Slutzky-effect. It is shown that the HP-filter is not subject to that critique and that the Slutzky-effect is a special case of a more general pattern of distortions of filters. Based on the theory of optimal filtering, we derive a frequency domain measure of the size of distortions when defining business cycles as cycles with a period less than a prespecified number of years. The metric is used for two purposes. First, to determine the optimal value of the smoothing parameter in the HP-filter. Secondly, to measure the size of distortions of ten filters including a new Hodrick-Prescott based band pass filter. The main conclusions are that the standard value of the smoothing parameter of the HP-filter, = 1600, is close to being the optimal value when filtering near-integrated time series and that the HP-filter is less distorting than any of the other filters studied.

Suggested Citation

  • Torben Mark Pedersen, 1998. "The Hodrick-Prescott Filter, the Slutzky Effect, and the Distortionary Effect of Filters," Discussion Papers 98-09, University of Copenhagen. Department of Economics.
  • Handle: RePEc:kud:kuiedp:9809
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Arby, Muhammad Farooq, 2001. "Long-run trend, Business Cycle & Short-run shocks in real GDP," MPRA Paper 4929, University Library of Munich, Germany.
    2. Bouthevillain, Carine & Cour-Thimann, Philippine & van de Dool, Gerrit & Hernández de Cos, Pablo & Langenus, Geert & Mohr, Matthias & Momigliano, Sandro & Tujula, Mika, 2001. "Cyclically adjusted budget balances: an alternative approach," Working Paper Series 77, European Central Bank.

    More about this item

    Keywords

    detrending; Hodrick-Prescott filter; Slutzky effect; optimal filtering; spectral analysis; business cycles;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kud:kuiedp:9809. 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: (Thomas Hoffmann). General contact details of provider: http://edirc.repec.org/data/okokudk.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.