A robust method to date recessions and compute output gaps: the portuguese case

João B. Assunção, Pedro Afonso Fernandes*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

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Abstract

The application of the Hodrick-Prescott (HP) and other linear filters to remove trend and extract business cycles in macroeconomic time series is a common practice despite its limitations, namely, in signaling recessions. Median filters and other nonlinear techniques can perform better by accommodating sharp but fundamental changes in the growth trend and passing only the relevant information to the cycle component, a possible measure of the output gap of an economy. An application to the Portuguese relevant macroeconomic series confirmed the robustness of nonlinear filters in signaling the recessions and recoveries. In particular, the Mosheiov-Raveh (MR) filter estimates piecewise trend growth paths that naturally date the specific periods of the Portuguese economy since 1977.

Original languageEnglish
JournalPortuguese Economic Journal
DOIs
Publication statusAccepted/In press - May 2024

Keywords

  • Business cycles
  • C22
  • E32
  • Linear and nonlinear filtering
  • Time series models
  • Trend estimation

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