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

Within a New Zealand business cycle context, we assess whether Hamilton’s (H84) OLS regression methodology produces stylised facts which are materially different from the Hodrick–Prescott (HP) and Baxter–King (BK) measures, using H84 predictor for forecast-extension improves HP filter’s properties at ends of series. Stylised were computed set key macroeconomic variables. In general, greater volatilities less credible trend movements during economic periods than either or BK, so this purpose there is no material advantage in over BK. At series, evaluate performance forecast-extended filter three representative environments. The methods compared include predictor, informed forecasts leading agencies, two based on models past data, with extension. As expected, better more accurate series and, as reported elsewhere literature, extension performed poorly. However, all cases considered worst.