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How To Use the HP Filter in Microsoft Excel 2007

How To Use the HP Filter in Microsoft Excel 2007. Hodrick-Prescott filter, or H-P filter, is frequently used to extract the long-term trend component of macroeconomic time series such as GDP. .

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How To Use the HP Filter in Microsoft Excel 2007

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  1. How To Use the HP Filter inMicrosoft Excel 2007
  2. Hodrick-Prescott filter, or H-P filter, is frequently used to extract the long-term trend component of macroeconomic time series such as GDP. A Danish guy by the name of Kurt Annen developed an Excel Add-In program for the Hodrick-Prescott filter algorithm and made it available for public use.
  3. First, go to Kurt Annen’s homepage and download the Hodrick-Prescott filter add-in zip file. http://www.web-reg.de . (click excel add-ins – hodrickprescott filter – download )
  4. Extract content in the zip file to a directory. The zip file contains the Add-In (the file with the image of a block) and an example file with an introduction. Open Microsoft Excel 2007 and click the ‘Office button’ on the upper left corner.
  5. Look for ‘Excel Option(엑셀 옵션)’ button on bottom right and click it. Click Add-in(추가기능), Go To(이동), Browse (찾아보기) and then select the HP Add-in file (HPFilter.xla file) in your directory. After pressing OK, the filter has been installed and ready to be used in Excel 2007.
  6. Let’s practice using real GDP data for Q1/2001– Q2/2007 Placing mouse cursor onto the worksheet on the right, right click and choose ‘worksheet object(워크시트 개체)’ and ‘open(열기)’ to open it into a full excel worksheet. Save the file in a folder and practice as follows.
  7. Select a block of cells where you want the filter to write the trend component in. Make sure the length of the block is identical. (Pressing the Shift key with your left baby finger, place the mouse cursor on cell C4 and then click cell C29. )
  8. Input = hp( in the formula bar.
  9. Add the range of block as follows. = hp(B4:B29 Instead of writing the range as above, you can also drop the cursor on cell C4 and C29 in order while pressing the Shift key with your left baby finger.
  10. Now write in the smoothing coefficient as follows. , 1600) Then hit the Enter key while pressing the Shift key and the Control key simultaneously. Smoothing Coefficient Annual data: 100 Monthly data: 14400 Quarterly data: 1600
  11. Here’s the result.
  12. Real GDP and Trend Component of Real GDP Trend GDP obtained via the H-P filter. (We can for now consider this as the potential GDP)
  13. Now we are ready to obtain the GDP gap series. Enter ‘=b4-c4’ in cell D4 and then hit the enter key. Place the mouse cursor on the right bottom of the cell D4 such that + sign shows up and then drag it all the way down to the bottom cell of the block.
  14. Here we are….. We now have the GDP gap series, or the cyclical component of the real GDP. The chart is shown on the next slide.
  15. GDP gap Note: In typical economic analysis, we take natural logarithm of the GDP series and express the GDP gap as (lny–lny*)/lny*.
  16. An Important Tip Please download the lecture note file again. I have updated both the real GDP and CPI inflation data in the excel file that can be launched from the chart on slide 49.
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