Chapter 33Effects of the Hodrick-Prescott filter on trend and difference stationary time series Implications for business cycle research
Journal of Economic Dynamics and Control
a Research Department, Federal Reserve Bank of San Francisco, San Francisco, CA 94120, USA
b Department of Economics, University of British Columbia, Vancouver, B.C., V6T 1Z1, Canada
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 ...
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