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Why you should never use the Hodrick-Prescott filter: comment

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  • Moura, Alban

Abstract

Hamilton (2018) argues that one should never use the Hodrick-Prescott (HP) filter to detrend economic time series and proposes a new regression-based approach. This comment shows that this alternative shares the main drawbacks Hamilton finds in the HP filter: filter-induced dynamics in the estimated cycles and arbitrariness in the choice of a filter-defining parameter. In addition, the Hamilton trend lags the data by construction, leading to peculiar timing properties. Overall, it seems unlikely that the Hamilton filter really improves on the HP filter in practice.

Suggested Citation

  • Moura, Alban, 2022. "Why you should never use the Hodrick-Prescott filter: comment," MPRA Paper 114922, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:114922
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    References listed on IDEAS

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    5. James D. Hamilton, 2018. "Why You Should Never Use the Hodrick-Prescott Filter," The Review of Economics and Statistics, MIT Press, vol. 100(5), pages 831-843, December.
    6. Viv B. Hall & Peter Thomson, 2021. "Does Hamilton’s OLS Regression Provide a “better alternative” to the Hodrick-Prescott Filter? A New Zealand Business Cycle Perspective," Journal of Business Cycle Research, Springer;Centre for International Research on Economic Tendency Surveys (CIRET), vol. 17(2), pages 151-183, November.
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    More about this item

    Keywords

    HP filter; Hamilton filter; business cycles; detrending; filtering;
    All these keywords.

    JEL classification:

    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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