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Short-Term and Long-Term Trends, Seasonal Adjustment, and the Business Cycles

Author

Listed:
  • Regina Kaiser
  • Agustín Maravall

Abstract

In this monograph, first, we analyze in detail some of the major limitations of the standard procedure to estimate business cycles with the Hodrick-Prescott (HP) filter. By incorporating time series analysis techniques, it is seen how some intuitive and relatively simple modifications to the filter can improve significantly its performance, in particular in terms of cleanness of the signal, smaller revision, stability of end-period estimators, and detection of turning points. Then, we show how the modified filter can be seen as the exact solution of a well-defined statistical problem, namely, optimal (minimum mean squared error) estimation of components in a standard unobserved-component model, where the observed series is decomposed into a trend, a cycle, a seasonal, and an irregular component.

Suggested Citation

  • Regina Kaiser & Agustín Maravall, 1999. "Short-Term and Long-Term Trends, Seasonal Adjustment, and the Business Cycles," Working Papers 9918, Banco de España.
    • Handle: RePEc:bde:wpaper:9918
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    Citations

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    Cited by:

    1. Pacheco Jiménez, J.F., 2001. "Business cycles in small open economies: the case of Costa Rica," ISS Working Papers - General Series 19075, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
    2. Dahl, Christian M. & Hansen, Henrik & Smidt, John, 2009. "The cyclical component factor model," International Journal of Forecasting, Elsevier, vol. 25(1), pages 119-127.
    3. Ángel Estrada & Ignacio Hernando & J. David López-Salido, 2000. "Measuring the NAIRU in the Spanish Economy," Working Papers 0009, Banco de España.

    More about this item

    Keywords

    BUSINESS CYCLES ; ESTIMATOR;

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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