Working Paper: CEPR ID: DP2858
Authors: Morten Ravn; Harald Uhlig
Abstract: This Paper studies how the HP-Filter should be adjusted, when changing the frequency of observations. It complements the results of Baxter and King (1999) with an analytical analysis, demonstrating that the filter parameter should be adjusted by multiplying it with the fourth power of the observation frequency ratios. This yields an HP parameter value of 6.25 for annual data given a value of 1600 for quarterly data. The relevance of the suggestion is illustrated empirically.
Keywords: business cycles; historical business cycle properties; hpfilter; temporal aggregation; trends
JEL Codes: C32; E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Observation frequency ratios (C29) | Appropriate smoothing parameter (C51) |
| Annual data (Y10) | HP parameter value of 625 (C29) |
| Quarterly data (Y10) | HP parameter value of 1600 (C88) |
| Frequency of observations (C41) | Variance ratio of cyclical component to trend's second difference (C22) |
| HP parameter of 625 for annual data (C29) | Similar trends to HP parameter of 1600 for quarterly data (C22) |