Housing Yields

Giacomo Porcellotti

Carlo Alberto Notebooks from Collegio Carlo Alberto

Abstract: Although its poor end-of-sample performance and the resulting real-time un- reliability, Hodrick and Prescott (1997) filter is the most popular detrending method. Here I exploit forecasts by Survey of Professional Forecasters (SPF) to construct a real-time reliable output gap estimate based on a forecast aug- mented HP filter. I show that the new filter has a sharp better forecasting properties for output growth, unemployment rate and inflation by a standard Phillips curve relation. It is much more correlated with Policy Institutions output gaps and also slightly outperforms one-sided Hamilton (2018) filtered output gaps in these comparisons. An analytical formulation of the forecast augmented HP filter is provided. The good real-time properties of forecast augmentation are extended also to Butterworth et al. (1930), Christiano and Fitzgerald (2003) band-pass filters and Canada’s country case.

Keywords: Business cycle measurement; trend-cycle decomposition; real-time reliability; output growth forecasting; inflation forecasting (search for similar items in EconPapers)
Pages: 51 pages
Date: 2024
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