On Smoothing Macroeconomic Time Series using HP and Modified HP Filter

Ali Choudhary, Muhammad Hanif and Javed Iqbal

No 60, SBP Working Paper Series from State Bank of Pakistan, Research Department

Abstract: In business cycle research, smoothing data is an essential step in that it can influence the extent to which model-generated moments stand up to their empirical counterparts. To demonstrate this idea, we compare the results of McDermott’s (1997) modified HP-filter with the conventional HP-filter on the properties of simulated and actual macroeconomic series. Our simulations suggest that the modified HP-filter proxies better the true cyclical series. This is true for temporally aggregated data as well. Furthermore, we find that although the autoregressive properties of the smoothed observed series are immune to smoothing procedures, the multivariate analysis is not. As a result, we recommend and hence provide series, country and frequency specific smoothing parameters.

Keywords: Business cycles; cross country comparisons; smoothing parameter; time aggregation (search for similar items in EconPapers)
JEL-codes: C32 C43 E32 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2013-05
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Citations: View citations in EconPapers (3)

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Working Paper: On smoothing macroeconomic time series using HP and modified HP filter (2013)
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