Publication Type
Journal Article
Version
acceptedVersion
Publication Date
5-2021
Abstract
Trend elimination and business cycle estimation are analyzed by finite sample and asymptotic methods. An overview history is provided, operator theory is developed, limit theory as the sample size n → ∞ is derived, and filtered series properties are studied relative to smoothing parameter (λ) behavior. Simulations reveal that limit theory with λ =O(n4) delivers excellent approximations to the HP filter for common sample sizes but fails to remove stochastic trends, contrary to standard thinking in macroeconomics and thereby explaining ‘spurious cycle’ effects of the HP filter. The findings are related to the long run effects of the GFC.
Keywords
Detrending, Graduation, Hodrick Prescott filter, Integrated process, Limit theory, Smoothing, Trend break, Whittaker filter
Discipline
Econometrics
Research Areas
Econometrics
Publication
International Economic Review
Volume
62
Issue
2
First Page
469
Last Page
520
ISSN
0020-6598
Identifier
10.1111/iere.12494
Publisher
Wiley
Citation
PHILLIPS, Peter C. B. and JIN, Sainan.
Business cycles, trend elimination, and the HP filter. (2021). International Economic Review. 62, (2), 469-520.
Available at: https://ink.library.smu.edu.sg/soe_research/2423
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1111/iere.12494