Selecting the tuning parameter of the 1 trend filter

Hiroshi Yamada 1  and Gawon Yoon 2
  • 1 Department of Economics, Hiroshima University, 1-2-1 Kagamiyama, Higashi-Hiroshima 739-8525, Japan
  • 2 Department of Economics, Kookmin University, 136–702, S. Korea
Hiroshi Yamada and Gawon Yoon

Abstract

The 1 trend filter, which is similar to the popular Hodrick–Prescott (HP) filter, seems to be very promising because it enables us to estimate a piecewise linear trend without specifying the location and number of kink points a priori. Such a trend may be regarded as a result of occasional permanent shocks to the growth rate. Similarly to the HP filter, the value of the tuning parameter needs to be selected in applying this filter. This paper proposes a method for selecting the tuning parameter of the 1 trend filter and its generalization.

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SNDE recognizes that advances in statistics and dynamical systems theory can increase our understanding of economic and financial markets. The journal seeks both theoretical and applied papers that characterize and motivate nonlinear phenomena. Researchers are required to assist replication of empirical results by providing copies of data and programs online. Algorithms and rapid communications are also published.

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