Empirical Economics

, Volume 39, Issue 3, pp 713–731 | Cite as

Three new empirical perspectives on the Hodrick–Prescott parameter

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Abstract

The purpose of this article is to provide three new empirical perspectives on the validity of the value of the smoothing parameter in the Hodrick–Prescott filter (HP filter): Bayesian smoothness perspective, output gap perspective, and forecasting perspective. The quarterly time series of industrial production and capacity utilization for developed countries are analyzed. The empirical results suggest that (1) from the Bayesian smoothness perspective, the HP filter with 1600 as the value of the smoothing parameter (HP1600 filter) is mostly unable to provide a sufficiently smooth trend component; (2) from the output gap perspective, the HP1600 filter provides a poor cycle component; (3) from the forecasting perspective, the HP1600 filter is most suitable for eight-step or nine-step ahead forecasting.

Keywords

Bayesian smoothness solution Empirical perspective: Hodrick–Prescott filter Multistep ahead forecasting Output gap 

JEL Classification

C22 E32 
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Copyright information

© Springer-Verlag 2009

Authors and Affiliations

  1. 1.College of EconomicsNihon UniversityTokyoJapan

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