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Joint smoothing of GDP and unemployment with a bivariate HP filter/Suavizamiento conjunto del PIB y la tasa de desempleo con un filtro HP bivariado

Author

Listed:
  • Alejandro Islas

    (Instituto Tecnológico Autónomo de México)

  • Víctor M. Guerrero

    (Instituto Tecnológico Autónomo de México)

Abstract

The problem of jointly estimating unobserved trends and cycles of a bivariate time series considered here appears within the macroeconomic context of Okun’s Law when relating output gaps and the unemployment rate. Joint estimation of the output and unemployment trends is carried out by applying a bivariate time series filter that allows for simultaneous estimation of the correlation between cycles. The estimation procedure employed is based on an extension of the univariate Hodrick-Prescott filter and its application in practice is relatively easy. The main contribution of our approach is that we can control the amount of smoothness in the trends by fixing the smoothing parameter. The empirical application uses data on U.S. real gross domestic product and the unemployment rate.

Suggested Citation

  • Alejandro Islas & Víctor M. Guerrero, 2019. "Joint smoothing of GDP and unemployment with a bivariate HP filter/Suavizamiento conjunto del PIB y la tasa de desempleo con un filtro HP bivariado," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 34(1), pages 3-24.
    • Handle: RePEc:emx:esteco:v:34:y:2019:i:1:p:3-24
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    File URL: https://estudioseconomicos.colmex.mx/index.php/economicos/article/view/362/401
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    More about this item

    Keywords

    business cycle; correlations; cyclical unemployment; signal extraction; smoothness index;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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