Low frequency filtering and real business cycles

Robert G. King*, Sergio T. Rebelo

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

305 Scopus citations

Abstract

This paper discusses in detail the Hodrick-Prescott (1980) filter from time and frequency domain perspectives, motivating it as a generalization of the exponential smoothing filter. We show that the HP filter — when applied to large samples — contains a centered fourth difference and hence renders stationary time series that are ‘difference-stationary’ and, indeed, integrated of higher order. However, our application of the HP filter to U.S. time series and to the simulated outcomes of real business cycle models leads us to question its widespread use as a unique method of trend elimination. We provide examples of how HP filtering dramatically alters measures of persistence, variability, and comovement.

Original languageEnglish (US)
Pages (from-to)207-231
Number of pages25
JournalJournal of Economic Dynamics and Control
Volume17
Issue number1-2
DOIs
StatePublished - 1993

ASJC Scopus subject areas

  • Economics and Econometrics
  • Control and Optimization
  • Applied Mathematics

Fingerprint Dive into the research topics of 'Low frequency filtering and real business cycles'. Together they form a unique fingerprint.

Cite this