Use the level or logarithm of GDP in HP filter?

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cuccu
Posts: 5
Joined: Mon Apr 27, 2009 3:03 am

Use the level or logarithm of GDP in HP filter?

Postby cuccu » Mon Jan 14, 2013 4:33 am

I see that in research papers their authors usually apply the HP filter with ln(GDP) instead of GDP at level, in order to find out business cycles.
Actually thus far I have not understood mathematical implications regarding using the logarithm (How to link to a recession?...). Any explanation in detail is much appreciated.

startz
Non-normality and collinearity are NOT problems!
Posts: 3775
Joined: Wed Sep 17, 2008 2:25 pm

Re: Use the level or logarithm of GDP in HP filter?

Postby startz » Mon Jan 14, 2013 7:53 am

GDP has roughly constant percentage growth over long periods, as opposed to linear growth. Hence the log transformation.

cuccu
Posts: 5
Joined: Mon Apr 27, 2009 3:03 am

Re: Use the level or logarithm of GDP in HP filter?

Postby cuccu » Mon Jan 14, 2013 9:23 am

Hi startz, what advantage would we have when applying the HP filter to this transformed series?
(You could show me in form of math formulas if feel convenient)


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