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- 1 + (1 L)2 (1 F)2 i x HP( ) t = (1 L)2 (1 F)2 yt; where now the forward and backward operators are deâned by Lyt = yt 1 Fyt = Etyt+1 as it is standard in rational expectations models (e.g. Blanchard and Fischer, 1989).
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- 1 + (1 L)2 (1 F)2 where HPg denotes the âlter whose application results in the âgapâ, while HPt denotes the âlter whose application produces the trend.21 Practical application of these âlters requires an Watson (2007) proposes a similar procedure using unrestricted ARIMA processes as forecasting tools.
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- approximation, since they embed a two-sided, inânite moving average of the data.22 However, application of Christiano and Fitzgeraldâs (2003) insight to a rational expectations context allows us to use the ideal âlter directly, where the approximation relies on the substitution of the inânite leads and lags implicit in HP (L) with rational expectation forecasts. In particular, given observations on log GDPt = yt; we deâne the HP gap with parameter as h
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- Details on this approximation can be found, for example, in Baxter and King (1999): C Tables Parameter Prior Posterior Distribution 5% Median 95% Mode 5% Median 95% ! G(1; 0:2) 0.70 0.99 1.35 0.96 0.67 0.96 1.32 G(0:1; 0:05) 0.03 0.09 0.19 0.001 0.000 0.002 0.004 B(0:6; 0:2) 0.25 0.61 0.90 0.56 0.46 0.59 0.70 B(0:6; 0:2) 0.25 0.61 0.90 0.69 0.10 0.53 0.80 B(0:7; 0:15) 0.43 0.72 0.92 0.70 0.62 0.72 0.80 N(1:5; 0:25) 1.09 1.50 1.91 0.89 0.66 1.03 1.49 4 x N(0:5; 0:2) 0.17 0.50 0.83 1.19 0.97 1.21 1.45 400 N(2; 1) 0.36 2.00 3.64 2.36 1.89 2.38 2.85 400ra N(2; 1) 0.36 2.00 3.64 1.90 0.83 1.90 2.95 400 a N(3; 0:35) 2.42 3.00 3.58 2.94 2.48 2.94 3.40 B(0:5; 0:2) 0.17 0.50 0.83 0.92 0.87 0.92 0.95 B(0:5; 0:2) 0.17 0.50 0.83 0.56 0.29 0.53 0.72 u B(0:5; 0:2) 0.17 0.50 0.83 0.11 0.06 0.32 0.71 IG1(0:5; 2) 0.17 0.34 1.24 1.23 0.95 1.37 2.04 IG1(0:5; 2) 0.17 0.34 1.24 2.05 1.34 2.13 3.02 u IG1(0:5; 2) 0.17 0.34 1.24 0.53 0.19 0.43 0.60 i IG1(0:5; 2) 0.17 0.34 1.24 0.27 0.23 0.30 0.39
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- Julliard at al. (2006) is the only example we could ând of an application to DSGEs models. The main objective of all these papers is to improve the end-of-sample performance of the âlters they consider.
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- King and Rebelo (1993) originally derived these expressions as the solution of a âsmoothingâ problem. However, they also showed that this âlter, with = 1600, approximates very well a high pass âlter with cuto frequency =16 or 32 quarters.
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- The ideal HP âlter is of the form (e.g. Baxter and King, 1999) HPg = (1 L)2 (1 F)2 1 + (1 L)2 (1 F)2 HPt =
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