On smoothing macroeconomic time series using HP and modified HP filter

Choudhary, Ali and Hanif, Nadim and Iqbal, Javed (2013): On smoothing macroeconomic time series using HP and modified HP filter.

Abstract

In business cycle research, smoothing data is an essential step in that it can influence the extent to which model-generated moments stand up to their empirical counterparts. To demonstrate this idea, we compare the results of McDermott’s (1997) modified HP-filter with the conventional HP-filter on the properties of simulated and actual macroeconomic series. Our simulations suggest that the modified HP-filter proxies better the true cyclical series. This is true for temporally aggregated data as well. Furthermore, we find that although the autoregressive properties of the smoothed observed series are immune to smoothing procedures, the multivariate analysis is not. As a result, we recommend and hence provide series-, country- and frequency specific smoothing parameters.

• Item Type: MPRA Paper
• Language: English
• Keywords: Business Cycles; Cross Country Comparisons; Smoothing Parameter; Time Aggregation
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; C - Mathematical and Quantitative Methods > C4 - Econometric and Statistical Methods: Special Topics > C43 - Index Numbers and Aggregation; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles

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