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Performance Comparison of Modified HP Filter, Wavelet Analysis and Empirical Mode Decomposition for Smoothing Macroeconomic Time Series


  • Javed Iqbal

    () (State Bank of Pakistan)

  • Muhammad Nadim Hanif

    () (State Bank of Pakistan)


We compare performance of modified HP filter, wavelet analysis and empirical mode decomposition. Our simulation study results suggest that modified HP filter performs better for an overall time series. However, in the middle (of time series) wavelet analysis performs best. Wavelet analysis based filtering has highest ‘end points bias (EPB)’. However, it performs better when we extrapolate the subject time series to lower the EPB. Study based on observed data of real income, investment and consumption shows that the autoregressive properties and multivariate analytics of cyclical components depend upon filtering technique.

Suggested Citation

  • Javed Iqbal & Muhammad Nadim Hanif, 2017. "Performance Comparison of Modified HP Filter, Wavelet Analysis and Empirical Mode Decomposition for Smoothing Macroeconomic Time Series," SBP Working Paper Series 87, State Bank of Pakistan, Research Department.
  • Handle: RePEc:sbp:wpaper:87

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    Business Cycle; Smoothing Macro Time Series; Modified HP Filter; Wavelet Analysis; End Point Bias in HP Filter; Simulation; Cross Country Study.;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General

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