Effects of the Hodrick-Prescott filter on trend and difference stationary time series Implications for business cycle research

Timothy Cogley, James M. Nason

    Research output: Contribution to journalArticle

    Abstract

    When applied to persistent time series, the Hodrick-Prescott filter can generate business cycle dynamics even if none are present in the original data. Hence the presence of business cycles in HP filtered data does not imply that there are business cycles in the original data. For example, we show that standard real business cycle models do not generate business cycle dynamics in pre-filtered data and that the business cycles observed in HP filtered data are due to the filter. As another example, we show that under plausible assumptions HP stylized facts are determined primarily by the filter and reveal little about the dynamics of the underlying data.

    Original languageEnglish (US)
    Pages (from-to)253-278
    Number of pages26
    JournalJournal of Economic Dynamics and Control
    Volume19
    Issue number1-2
    DOIs
    StatePublished - 1995

    Fingerprint

    Stationary Time Series
    Business Cycles
    Time series
    Filter
    Industry
    Real Business Cycles
    Stylized Facts
    Trends
    Hodrick-Prescott filter
    Business cycles
    Stationary time series
    Imply

    Keywords

    • Business fluctuations
    • Model evaluation and testing
    • Time series models

    ASJC Scopus subject areas

    • Economics and Econometrics
    • Applied Mathematics
    • Control and Optimization

    Cite this

    Effects of the Hodrick-Prescott filter on trend and difference stationary time series Implications for business cycle research. / Cogley, Timothy; Nason, James M.

    In: Journal of Economic Dynamics and Control, Vol. 19, No. 1-2, 1995, p. 253-278.

    Research output: Contribution to journalArticle

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