Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/57967
Authors: 
Flaig, Gebhard
Year of Publication: 
2012
Series/Report no.: 
CESifo working paper: Empirical and Theoretical Methods 3816
Abstract: 
The HP filter is the most popular filter for extracting the trend and cycle components from an observed time series. Many researchers consider the smoothing parameter lambda = 1600 as something like an universal constant. It is well known that the HP filter is an optimal filter under some restrictive assumptions, especially that the cycle is white noise. In this paper we show that one gets a good approximation of the optimal Wiener-Kolmogorov filter for autocorrelated cycle components by using the HP filter with a much higher smoothing parameter than commonly used. In addition, a new method - based on the properties of the differences of the estimated trend - is proposed for the selection of the smoothing parameter.
Subjects: 
Hodrick-Prescott filter
Wiener-Kolmogorov filter
smoothing parameter
trends
cycles
JEL: 
C22
C52
Document Type: 
Working Paper

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