Do the Hodrick-Prescott and Baxter-King Filters Provide a Good Approximation of Business Cycles?
The authors assess the ability of the Hodrick-Prescott filter (HP) and the band-pass filter proposed by Baxter and King (BK) to extract the business-cycle component of macroeconomic time series by using two different definitions of the business-cycle component. First, they define that component to be fluctuations lasting no fewer than 6 and no more than 32 quarters; this is the definition of business-cycle frequencies used by Baxter and King. Second, they define the business-cycle component on the basis of a decomposition of the series into permanent and transitory components. The conclusions are the same in both cases. The filters perform adequately when the spectrum of the original series has a peak at business-cycle frequencies. When the spectrum is dominated by low frequencies, the filters provide a distorted business cycle. These findings suggest that the use of the HP and BK filters with series having the typical Granger shape is highly problematic.
Year of publication: |
2005
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Authors: | GUAY, Alain ; SAINT-AMANT, Pierre |
Published in: |
Annales d'Economie et de Statistique. - École Nationale de la Statistique et de l'Admnistration Économique (ENSAE). - 2005, 77, p. 133-155
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Publisher: |
École Nationale de la Statistique et de l'Admnistration Économique (ENSAE) |
Saved in:
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