Interpretation of the Effects of Filtering Integrated Time Series

João Valle e Azevedo

Working Papers from Banco de Portugal, Economics and Research Department

Abstract: We resort to a rigorous definition of spectrum of an integrated time series in order to characterise the implications of applying linear filters to such series. We conclude that in the presence of integrated series the transfer function of the filters has exactly the same interpretation as in the covariance stationary case, contrary to what many authors suggest. This disagreement leads to different conclusions regarding the link of the original fluctuations with the transformed fluctuations in the time series data, embodied in various unjustified criticisms to the application of detrending filters. Despite this, and given the frequency domain characteristics of filtered macroeconomic integrated series, we acknowledge that the choice of a particular detrending filter is far from being a neutral task.

JEL-codes: C22 E32 (search for similar items in EconPapers)
Date: 2007
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Working Paper: Interpretation of the Effects of Filtering Integrated Time Series (2007)
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