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
Date Written: July 16, 2020
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: Suggested Citation