neverhpfilter Package

Introduction

In the working paper titled “Why You Should Never Use the Hodrick-Prescott Filter”, James D. Hamilton proposes a new alternative to economic time series filtering. The neverhpfilter package provides functions and data for reproducing 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 >= 3.5.0.

install.packages("neverhpfilter")

Or install from the Github master branch on R version >= 3.5.0.

devtools::install_github("JustinMShea/neverhpfilter")

Load the package

library(neverhpfilter)

Package Documentation

The package consists of 2 estimation functions, 12 economic xts objects, an xts object containing Robert Shiller’s U.S. Stock Markets and CAPE Ratio data from 1871 to Present, and a data.frame containing the original filter estimates found on table 2 of Hamilton (2017) <doi:10.3386/w23429>

Documentation for each can be found here:

• yth_glm

• yth_filter

• U.S. Stock Markets and CAPE Ratio 1871-Present

• Effective Federal Funds Rate

• 10-Year Treasury Constant Maturity Rate

• Gross Domestic Product

• Gross Domestic Product: Implicit Price Deflator

• Real Gross Private Domestic Investment

• Real Government Consumption Expenditures and Gross Investment

• Real Exports of Goods and Services

• Real Imports of goods and services

• Employment Situation

• Civilian Unemployment Rate

• Real Personal Consumption Expenditures

• Hamilton’s table 2 estimates

Finally, a vignette recreating the estimates of the original work can be found in Reproducing Hamilton.