Why you should never use the Hodrick-Prescott filter: comment

Moura, Alban (2022): Why you should never use the Hodrick-Prescott filter: comment.

Abstract

Hamilton (2018) argues that one should never use the Hodrick-Prescott (HP) filter to detrend economic time series and proposes a new regression-based approach. This comment shows that this alternative shares the main drawbacks Hamilton finds in the HP filter: filter-induced dynamics in the estimated cycles and arbitrariness in the choice of a filter-defining parameter. In addition, the Hamilton trend lags the data by construction, leading to peculiar timing properties. Overall, it seems unlikely that the Hamilton filter really improves on the HP filter in practice.

• Item Type: MPRA Paper
• Language: English
• Keywords: HP filter; Hamilton filter; business cycles; detrending; filtering
• Subjects: B - History of Economic Thought, Methodology, and Heterodox Approaches > B4 - Economic Methodology > B41 - Economic Methodology; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles

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