Does Hamilton’s OLS Regression Provide a “Better Alternative” to the Hodrick-Prescott Filter? A New Zealand Business Cycle Perspective

38 Pages Posted: 21 Jul 2020

See all articles by Viv B. Hall

Viv B. Hall

affiliation not provided to SSRN

Peter Thomson

School of Economics and Finance, Victoria University of Wellington and Statistics Research Associates, Wellington

Date Written: July 16, 2020

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.

Keywords: Hamilton regression filter, stylised business cycle facts, New Zealand, end-point issues

JEL Classification: E32, E37, C10, G01

Suggested Citation

Hall, Viv B. and Thomson, Peter, Does Hamilton’s OLS Regression Provide a “Better Alternative” to the Hodrick-Prescott Filter? A New Zealand Business Cycle Perspective (July 16, 2020). CAMA Working Paper No. 71/2020, Available at SSRN: https://ssrn.com/abstract=3652751 or http://dx.doi.org/10.2139/ssrn.3652751

Viv B. Hall (Contact Author)

affiliation not provided to SSRN

No Address Available

Peter Thomson

School of Economics and Finance, Victoria University of Wellington and Statistics Research Associates, Wellington ( email )

New Zealand

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