One-sided HP filter beginning of the sample

[michall23full]

Hello,

1.I have applied one-sided HP filter to log GDP per capita series and it produced first two observations of cycle component at technically zero (1E-07). It seems rather strange at that period economy was characterized by high unemployment and low GDP growth and so next few observations are negative. So is it a good idea to drop first observations when using one-sided HP filter ?

2. I have only 56 observations, so mean of cyclical component after one-sided HP filtering is around -0.003. Is it proper to demean this series prior to using as observable in DSGE ?

Thanks for your reply.

[jpfeifer]

1. Any filter will introduce artifacts at the beginning/end of the sample. For a one-sided backward-looking filter, this will only happen at the beginning of the sample. For a two-sided filter, it will happen at the end as well. You could drop the first observations, but I am not sure that would solve the problem, because generally the Kalman filter is applied with the initial state being the steady state, i.e. 0.
2. A small mean like that is nothing to worry about. It simply tells you that over the sample the shocks tended to have an on average negative effect.

[michall23full]

Thank you for your advice. Best wishes !