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HP vs. Hamilton: which is better to estimate trends? A comparison based on Euro Area GDP

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  • Silva Lopes, Artur

Abstract

This paper reconsiders the case of the rivalry between the HP and the Hamilton detrending methods, assessing it from a new angle, that of estimation of the trend itself. An extensive Monte Carlo study based on Euro area GDP is performed which, besides confirming and even reinforcing the superiority of the HP filter in terms of goodness of fit, demonstrates that, when the assessment criteria are designed to measure the success in terms of replicating long-run properties, the positions are switched, Hamilton's method dominating the HP filter. Since, however, both methods exhibit implausible features, a combination of them is employed to derive some empirical evidence concerning the Euro Area economy.

Suggested Citation

  • Silva Lopes, Artur, 2026. "HP vs. Hamilton: which is better to estimate trends? A comparison based on Euro Area GDP," EconStor Preprints 344078, ZBW - Leibniz Information Centre for Economics.
    • Handle: RePEc:zbw:esprep:344078
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    JEL classification:

    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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