Does Hamilton’s OLS regression provide a “better alternative†to the Hodrick-Prescott filter? A New Zealand business cycle perspective

Viv Hall and Peter Thomson

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: Within a New Zealand business cycle context, we assess whether Hamilton’s (H84) OLS regression methodology produces stylised business cycle facts which are materially different from HP1600 measures, and whether using the H84 predictor and other forecast extensions improves the HP filter’s properties at the ends of series. In general, H84 produces exaggerated volatilities and less credible trend movements during key economic periods so there is no material advantage in using H84 de-trending over HP1600. At the ends, the forecast-extended HP filter almost always performs better than the HP filter with no extension which performs slightly better than H84 forecast extension.

Keywords: Hamilton regression filter; stylised business cycle facts; New Zealand; end-point issues (search for similar items in EconPapers)
JEL-codes: C10 E32 E37 G01 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2020-07
New Economics Papers: this item is included in nep-mac and nep-ore
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2020-71

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