Summary:
The Hodrick-Prescott (HP) filter has become a widely used tool for detrending integrated time series. Even if the methodological literature sums up an extensive catalogue of severe criticism against an econometric analysis of HP filtered data, the original Hodrick and Prescott (1980, 1997) suggestion to measure the strength of association between economic variables by a regression analysis of corresponding HP filtered time series appears to be very popular. This might be justified if HP induced distortions were quantitatively negligible in empirical applications. However, the simulated regression analyses presented in our paper demonstrate that any attempts of inference based on HP prefiltered series are challenged by a serious risk of spurious regression results.
Zusammenfassung:
Umfangreicher methodischer Kritik zum Trotz repräsentiert der Hodrick-Prescott (HP) Filter ein häufig eingesetztes Werkzeug zur Trendbereinigung ökonomischer Zeitreihen. Diese Praxis der empirischen Wirtschaftsforschung ließe sich dann rechtfertigen, wenn die durch den Filtrationsprozess zwangsläufig verursachten Verzerrungen quantitativ unbedeutend wären. Die von uns durchgeführten Simulationsstudien veranschaulichen jedoch, dass Regressionsanalysen HP gefilterter Zeitreihen deutlichen und somit nicht vernachlässigbaren Verzerrungen unterliegen.
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We would like to thank the participants of the Fourth Workshop in Macroeconometrics at the Halle Institute for Economic Research for their comments on a preliminary version of this paper. We are also indebted to the participants of the Thirtieth Macromodels International Conference, in particular David Hendry, Søren Johansen, Katarina Juselius and Helmut Lütkepohl, for stimulating discussions and fruitful suggestions which helped to improve our paper. Finally, Larry Arnoldy helped to improve the final version of the paper.
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Meyer, M., Winker*, P. Using HP Filtered Data for Econometric Analysis: Some Evidence from Monte Carlo Simulations. Allgemeines Statistisches Arch 89, 303–320 (2005). https://doi.org/10.1007/s10182-005-0206-9
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DOI: https://doi.org/10.1007/s10182-005-0206-9