bpenedo/neverhpfilter

R package recreating econometric methods proposed in "Why You Should Never Use the Hodrick-Prescott Filter" by James Hamilton

neverhpfilter Package

Introduction

In the working paper titled "Why You Should Never Use the Hodrick-Prescott Filter", James D. Hamilton proposes an interesting new alternative to economic time series filtering. The neverhpfilter package provides functions for implementing his solution. Hamilton (2017) doi:10.3386/w23429

Hamilton's abstract offers an excellent introduction:

(1) The HP filter produces series with spurious dynamic relations that have no basis in the underlying data-generating process. (2) Filtered values at the end of the sample are very different from those in the middle, and are also characterized by spurious dynamics. (3) A statistical formalization of the problem typically produces values for the smoothing parameter vastly at odds with common practice, e.g., a value for $\lambda$ far below 1600 for quarterly data. (4) There's a better alternative. A regression of the variable at date $t + h$ on the four most recent values as of date $t$ offers a robust approach to detrending that achieves all the objectives sought by users of the HP filter with none of its drawbacks.

Getting Started

Install from CRAN on R version >= 3.4.0.

install.packages("neverhpfilter")

Or install from the Github master branch on R version >= 3.4.0.

devtools::install_github("JustinMShea/neverhpfilter")

Load the package

library(neverhpfilter)

Read the vignette Reproducing Hamilton.

Package Documentation

The package consists of 2 core functions documented here:

• yth_glm

• yth_filter