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Does Hamilton’s OLS regression provide a “better alternative†to the Hodrick-Prescott filter? A New Zealand business cycle perspective

Author

Listed:
  • Viv B Hall
  • Peter Thomson

Abstract

Within a New Zealand business cycle context, we assess whether Hamilton’s (H84) OLS regression methodology produces stylised business cycle facts which are materially different from HP1600 measures, and whether using the H84 predictor and other forecast extensions improves the HP filter’s properties at the ends of series. In general, H84 produces exaggerated volatilities and less credible trend movements during key economic periods so there is no material advantage in using H84 de-trending over HP1600. At the ends, the forecast-extended HP filter almost always performs better than the HP filter with no extension which performs slightly better than H84 forecast extension.

Suggested Citation

  • Viv B Hall & Peter Thomson, 2020. "Does Hamilton’s OLS regression provide a “better alternative†to the Hodrick-Prescott filter? A New Zealand business cycle perspective," CAMA Working Papers 2020-71, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2020-71
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    File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2020-07/71_2020_hall_thomson.pdf
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    More about this item

    Keywords

    Hamilton regression filter; stylised business cycle facts; New Zealand; end-point issues;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • G01 - Financial Economics - - General - - - Financial Crises

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