Comparison of HP Filter and the Hamilton’s Regression
In this paper we examine if the use of Hamilton’s regression filter significantly modifies the cyclical components concerning unemployment in Greece compared with those using the Hodrick–Prescott double filter (HP). Hamilton suggested the use of a regression filter in order to overcome some of the d...
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| Format: | Article |
| Language: | English |
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MDPI AG
2022-04-01
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| Series: | Mathematics |
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| Online Access: | https://www.mdpi.com/2227-7390/10/8/1237 |
| _version_ | 1827627831539007488 |
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| author | Melina Dritsaki Chaido Dritsaki |
| author_facet | Melina Dritsaki Chaido Dritsaki |
| author_sort | Melina Dritsaki |
| collection | DOAJ |
| description | In this paper we examine if the use of Hamilton’s regression filter significantly modifies the cyclical components concerning unemployment in Greece compared with those using the Hodrick–Prescott double filter (HP). Hamilton suggested the use of a regression filter in order to overcome some of the drawbacks of the HP filter, which contains the presence of false cycles, the bias in the end of the sample, and the ad-hoc assumptions for the parameters’ smoothing. Thus, our paper examines two widely used detrending methods for the extraction of cyclical components, including techniques of deterministic detrending as well as stochastic detrending. Using quarterly data for the unemployment of Greece in a macroeconomic model decomposition, we indicate that trend components and cycle components of Hamilton’s filter regression led to significantly larger cycle volatilities than those from the HP filter. The dynamic forecasting in the sample, occurred both with autoregressive forecasting, that yields steady forecasts for a wide variety of non-stationary procedures, and with the HP filter, along with its constraints at the end of the time series. The results of the paper showed that the dynamic forecasting of the HP filter is better than that of Hamilton’s in all assessment measures. |
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| format | Article |
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| institution | Directory Open Access Journal |
| issn | 2227-7390 |
| language | English |
| last_indexed | 2024-03-09T13:21:23Z |
| publishDate | 2022-04-01 |
| publisher | MDPI AG |
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| series | Mathematics |
| spelling | doaj.art-69e6abf2fd4d405cb7b3a80d9f6c1fef2023-11-30T21:29:05ZengMDPI AGMathematics2227-73902022-04-01108123710.3390/math10081237Comparison of HP Filter and the Hamilton’s RegressionMelina Dritsaki0Chaido Dritsaki1Department of Economics, University of Western Macedonia, 52100 Kastoria, GreeceDepartment of Accounting and Finance, University of Western Macedonia, 50100 Kozani, GreeceIn this paper we examine if the use of Hamilton’s regression filter significantly modifies the cyclical components concerning unemployment in Greece compared with those using the Hodrick–Prescott double filter (HP). Hamilton suggested the use of a regression filter in order to overcome some of the drawbacks of the HP filter, which contains the presence of false cycles, the bias in the end of the sample, and the ad-hoc assumptions for the parameters’ smoothing. Thus, our paper examines two widely used detrending methods for the extraction of cyclical components, including techniques of deterministic detrending as well as stochastic detrending. Using quarterly data for the unemployment of Greece in a macroeconomic model decomposition, we indicate that trend components and cycle components of Hamilton’s filter regression led to significantly larger cycle volatilities than those from the HP filter. The dynamic forecasting in the sample, occurred both with autoregressive forecasting, that yields steady forecasts for a wide variety of non-stationary procedures, and with the HP filter, along with its constraints at the end of the time series. The results of the paper showed that the dynamic forecasting of the HP filter is better than that of Hamilton’s in all assessment measures.https://www.mdpi.com/2227-7390/10/8/1237Hamilton regression filterHodrick–Prescott filterunemployment |
| spellingShingle | Melina Dritsaki Chaido Dritsaki Comparison of HP Filter and the Hamilton’s Regression Mathematics Hamilton regression filter Hodrick–Prescott filter unemployment |
| title | Comparison of HP Filter and the Hamilton’s Regression |
| title_full | Comparison of HP Filter and the Hamilton’s Regression |
| title_fullStr | Comparison of HP Filter and the Hamilton’s Regression |
| title_full_unstemmed | Comparison of HP Filter and the Hamilton’s Regression |
| title_short | Comparison of HP Filter and the Hamilton’s Regression |
| title_sort | comparison of hp filter and the hamilton s regression |
| topic | Hamilton regression filter Hodrick–Prescott filter unemployment |
| url | https://www.mdpi.com/2227-7390/10/8/1237 |
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