Managing the Uncertainty in the Hodrick Prescott Filter

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

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Filter, Hodrick Prescott, Uncertainty
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C52 - Model Evaluation, Validation, and Selection; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles

References

Hodrik, R. y E.P. Prescott, “Post-war Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, 1997, (29), 1-16.

Ley, Eduardo, “The Hodrick-Prescott Filter," December 2006. Knowledge Brief for Bank Staff. World Bank.

Marcet, Albert y Morten O. Ravn, “The HP-Filter in Cross-Country Comparisons," CEPR Discussion Papers 4244, C.E.P.R. Discussion Papers February 2004.