Estimating the Smoothing Parameter in the
So-Called Hodrick-Prescott Filter

by Ekkehart Schlicht


Discussion Paper No. 2004-2, Department of Economics, University of Munich

February 2004
 

Abstract

This note gives a fairly complete statistical description of the Hodrick-Prescott Filter (1997) which has been proposed in the context of my seasonal adjustment method (Schlicht 1981, 1984). A statistics estimator for the smoothing parameter is proposed that is asymptotically equivalent to the maximum-likelihood estimator, has a straightforward intuitive interpretation and works better in small samples than the maximum-likelihood estimator. The method is illustrated by an application and several simulations.
 

 

 

 

 

Hodrick-Prescott filter; Kalman filtering; Kalman-Bucy; Whittaker-Henderson graduation, spline, state-space models; random walk; time-varying coefficients; adaptive estimation; time-series; seasonal adjustment; trend
 

Journal of Economic Literature classification number: C22. 

 

Article


 

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