The HP-filter in cross-country comparisons
Many empirical studies of business cycles have followed the practise of applying the Hodrick-Prescott filter for cross-country comparisons. The standard procedure is to set the weight \lambda, which determines the 'smoothness' of the trend equal to 1600. We show that if this value is used for against common wisdom about business cycles. As an example, we show that the long recession occurred inSpain between 1975 and 1985 goes unnotoced by the HP filter. We propose a method for adjusting \lambda by reinterpreting the HP-filter as the solution to a constrained minimization problem. We argue that the common practice of fixing \lambda across countries amounts to chankging the constraints on trend variability across countries. Our proposed method is easy to apply, retains all the virtues of the standard HP-filter and when applied to Spanish data the results are in the line with economic historian's view. Applying the method to a number of OECD countries we find that, with the exception of Spain, Italy and Japan, the standard choice of \lambda=1600 is sensible.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1987.
"International real business cycles,"
426, Federal Reserve Bank of Minneapolis.
- Ambler, S. & Cardia, E. & Zimmermann, C., 2000.
"International Business Cycles: What Are the Facts?,"
Cahiers de recherche
2000-05, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
- Ambler, Steve & Cardia, Emanuela & Zimmermann, Christian, 2004. "International business cycles: What are the facts?," Journal of Monetary Economics, Elsevier, vol. 51(2), pages 257-276, March.
- AMBLER, Steve & CARDIA, Emanuela & ZIMMERMANN, Christian, 2000. "International Business Cycles: What Are the Facts?," Cahiers de recherche 2000-05, Universite de Montreal, Departement de sciences economiques.
- Steve Ambler & Emanuela Cardia & Christian Zimmermann, 1999. "International Business Cycles: What are the Facts?," Cahiers de recherche CREFE / CREFE Working Papers 90, CREFE, Université du Québec à Montréal.
- Morten O. Ravn & Harald Uhlig, 2001.
"On Adjusting the HP-Filter for the Frequency of Observations,"
CESifo Working Paper Series
479, CESifo Group Munich.
- Uhlig, H.F.H.V.S. & Ravn, M., 1997. "On Adjusting the H-P Filter for the Frequency of Observations," Discussion Paper 1997-50, Tilburg University, Center for Economic Research.
- Ravn, Morten O & Uhlig, Harald, 2001. "On Adjusting the HP-Filter for the Frequency of Observations," CEPR Discussion Papers 2858, C.E.P.R. Discussion Papers.
- Luis Puch & Omar Licandro, .
"Are there any special features in the Spanish business cycles?,"
- Luis A. Puch & Omar Licandro, 1997. "Are there any special features in the Spanish business cycle?," Investigaciones Economicas, Fundación SEPI, vol. 21(2), pages 361-394, May.
- Marianne Baxter & Robert G. King, 1999.
"Measuring Business Cycles: Approximate Band-Pass Filters For Economic Time Series,"
The Review of Economics and Statistics,
MIT Press, vol. 81(4), pages 575-593, November.
- Tom Doan, . "BKFILTER: RATS procedure to implement band pass filter using Baxter-King method," Statistical Software Components RTS00026, Boston College Department of Economics.
- Marianne Baxter & Robert G. King, 1995. "Measuring Business Cycles Approximate Band-Pass Filters for Economic Time Series," NBER Working Papers 5022, National Bureau of Economic Research, Inc.
- David K. Backus & Patrick J. Kehoe, 1992.
"International Evidence on the Historical Properties of Business Cycles,"
92-5, New York University, Leonard N. Stern School of Business, Department of Economics.
- Backus, David K & Kehoe, Patrick J, 1992. "International Evidence of the Historical Properties of Business Cycles," American Economic Review, American Economic Association, vol. 82(4), pages 864-88, September.
- David K. Backus & Patrick J. Kehoe, 1991. "International evidence on the historical properties of business cycles," Staff Report 145, Federal Reserve Bank of Minneapolis.
When requesting a correction, please mention this item's handle: RePEc:upf:upfgen:588. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.