A robust method to date recessions and compute output gaps: the Portuguese case

João B. Assunção () and Pedro Afonso Fernandes ()
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João B. Assunção: Católica Lisbon School of Business & Economics, Universidade Católica Portuguesa
Pedro Afonso Fernandes: Católica Lisbon School of Business & Economics, Universidade Católica Portuguesa

Portuguese Economic Journal, 2025, vol. 24, issue 1, No 7, 121 pages

Abstract: Abstract The application of the Hodrick-Prescott (HP) and other linear filters to remove trend and extract business cycles in macroeconomic time series is a common practice despite its limitations, namely, in signaling recessions. Median filters and other nonlinear techniques can perform better by accommodating sharp but fundamental changes in the growth trend and passing only the relevant information to the cycle component, a possible measure of the output gap of an economy. An application to the Portuguese relevant macroeconomic series confirmed the robustness of nonlinear filters in signaling the recessions and recoveries. In particular, the Mosheiov-Raveh (MR) filter estimates piecewise trend growth paths that naturally date the specific periods of the Portuguese economy since 1977.

Keywords: Time series models; Trend estimation; Business cycles; Linear and nonlinear filtering (search for similar items in EconPapers)
JEL-codes: C22 E32 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s10258-024-00259-4

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