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MCMC Estimation of Extended Hodrick-Prescott (HP) Filtering Models

  • Wolfgang Polasek


    (Institute for Advanced Studies, Austria; University of Porto, Portugal; The Rimini Centre for Economic Analysis (RCEA), Italy)

The Hodrick-Prescott (HP) method was originally developed to smooth time series, i.e. to get a smooth (long-term) component. We show that the HP smoother can be viewed as a Bayesian linear model with a strong prior for the smoothness component. Extending this Bayesian approach in a linear model set-up is possible by a conjugate and a non-conjugate model using MCMC. The Bayesian HP smoothing model is also extended to a spatial smoothing model. We have to define spatial neighbors for each observation and we can use in a similar way a smoothness prior as for the HP filter in time series. The new smoothing approaches are applied to the (textbook) airline passenger data for time series and to the problem of smoothing spatial regional data. This new approach can be used for a new class of model-based smoothers for time series and spatial models.

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Paper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 25_11.

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Date of creation: May 2011
Date of revision:
Handle: RePEc:rim:rimwps:25_11
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  1. Wolfgang Polasek, 2011. "MCMC Estimation of Extended Hodrick-Prescott (HP) Filtering Models," Working Paper Series 25_11, The Rimini Centre for Economic Analysis.
  2. Ravn, Morten O., 1997. "International business cycles in theory and in practice," Journal of International Money and Finance, Elsevier, vol. 16(2), pages 255-283, April.
  3. Richard Sellner & Wolfgang Polasek, 2011. "Does Globalization a ffect Regional Growth? Evidence for NUTS-2 Regions in EU-27," ERSA conference papers ersa11p819, European Regional Science Association.
  4. Danthine, Jean-Pierre & Girardin, Michel, 1989. "Business cycles in Switzerland : A comparative study," European Economic Review, Elsevier, vol. 33(1), pages 31-50, January.
  5. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
  6. Morten O. Ravn & Harald Uhlig, 2001. "On Adjusting the HP-Filter for the Frequency of Observations," CESifo Working Paper Series 479, CESifo Group Munich.
  7. Blackburn, Keith & Ravn, Morten O, 1992. "Business Cycles in the United Kingdom: Facts and Fictions," Economica, London School of Economics and Political Science, vol. 59(236), pages 383-401, November.
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