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

Author

Listed:
  • Javed Iqbal

    (State Bank of Pakistan)

  • Muhammad Nadim Hanif

    (State Bank of Pakistan)

Abstract

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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    File URL: http://www.sbp.org.pk/publications/wpapers/2017/wp87.pdf
    File Function: First version, 2017
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    Cited by:

    1. Muhammad Nadim Hanif & Javaid Iqbal & Syed Hamza Ali & Muhammad Abdus Salam, 2020. "Denoised Inflation: A New Measure of Core Inflation," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 9(2), pages 131-154.
    2. Muhammad Nadim Hanif & Sajjad Zaheer & Javed Iqbal, 2022. "Time-Frequency Analysis of Determinants of Inflation Rate in Pakistan," SBP Working Paper Series 111, State Bank of Pakistan, Research Department.

    More about this item

    Keywords

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

    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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