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Managing the Uncertainty in the Hodrick Prescott Filter

Leon, Jorge (2012): Managing the Uncertainty in the Hodrick Prescott Filter.

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Abstract

This paper modifies the standard Hodrick Prescot Filter in order to reduce the problem of misleading predictive outcome when used with updated information. The modification allow for a more accurate estimation of output gap, as well as the introduction of confidence intervals that permit a better understanding of the uncertainty related to the estimation of the filter. Also improve the efficiency using a correction for autocorrelation in the errors of estimation.

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