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On Smoothing Macroeconomic Time Series using HP and Modified HP Filter

Author

Listed:
  • Muhammad Ali Choudhary

    (State Bank of Pakistan)

  • Muhammad Nadim Hanif

    (State Bank of Pakistan)

  • Javed Iqbal

    (State Bank of Pakistan)

Abstract

In business cycle research, smoothing data is an essential step in that it can influence the extent to which model-generated moments stand up to their empirical counterparts. To demonstrate this idea, we compare the results of McDermott’s (1997) modified HP-filter with the conventional HP-filter on the properties of simulated and actual macroeconomic series. Our simulations suggest that the modified HP-filter proxies better the true cyclical series. This is true for temporally aggregated data as well. Furthermore, we find that although the autoregressive properties of the smoothed observed series are immune to smoothing procedures, the multivariate analysis is not. As a result, we recommend and hence provide series, country and frequency specific smoothing parameters.

Suggested Citation

  • Muhammad Ali Choudhary & Muhammad Nadim Hanif & Javed Iqbal, 2013. "On Smoothing Macroeconomic Time Series using HP and Modified HP Filter," SBP Working Paper Series 60, State Bank of Pakistan, Research Department.
    • Handle: RePEc:sbp:wpaper:60
    as

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    File URL: http://www.sbp.org.pk/repec/sbp/wpaper/wp60.pdf
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    References listed on IDEAS

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    Cited by:

    1. Hanif, Muhammad Nadim, 2014. "Monetary Policy Experience of Pakistan," MPRA Paper 60855, University Library of Munich, Germany.
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    3. Israa A. El Husseiny, 2018. "On the Cyclical Behavior of Fiscal Policy in Egypt," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 12(1), March.

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    More about this item

    Keywords

    Business cycles; cross country comparisons; smoothing parameter; time aggregation;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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