Friday, April 20, 2012

More on Confidence Bands for the HP Filter

Last December I had a post (and a subsequent correction) relating to a method for constructing confidence bands for the Hodrick-Prescott (H-P) filter. More specifically, I proposed a way of constructing a confidence band for the trend, or long-run growth component, of a time-series that has been run through the H-P filter.

A few people suggested to me that it might be worth writing up the material more formally, so I've done just that. You can find the working paper version here.

I've included two applications in the paper - both of them different from the one that I used in the blog post. One application relates to the U.S. unemployment rate, and the other involves U.S. real value-added output.

Feedback would be appreciated!

© 2012, David E. Giles

2 comments:

  1. In addition to GDP and unemployment, it would also be good to show a credit-GDP ratio, as specified in the Countercyclical Capital Buffer under Basel III. There are many central banks looking at this issue.

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    1. That's a great suggestion - thank you very much!

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