On Adjusting the Hodrick-Prescott Filter for the Frequency of Observations
Morten O. Ravn,Harald Uhlig +1 more
TL;DR: In this paper, the Hodrick-Prescott filter parameter was adjusted by multiplying it with the fourth power of the observation frequency ratios, which yields an HP parameter value of 6.25.
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Abstract: This paper studies how the Hodrick-Prescott filter should be adjusted when changing the frequency of observations. It complements the results of Baxter and King (1999) with an analytical analysis, demonstrating that the filter parameter should be adjusted by multiplying it with the fourth power of the observation frequency ratios. This yields an HP parameter value of 6.25 for annual data given a value of 1600 for quarterly data. The relevance of the suggestion is illustrated empirically.
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References
Methodological and empirical issues in real business cycle theory
TL;DR: In this paper, the authors argue that the major impact of the RBC literature has been to propose a new methodology for macroeconomics, which is distinguished by the importance it attributes to the empirical description of the phenomena to be explained and, second, by the use of this description in conjunction with quantitative theorizing, i.e., the construction of computable general equilibrium models whose characteristic statistics match those of the data.
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