Finance and Economics Discussion Series (FEDS)
December 2007
Continuous Time Extraction of a Nonstationary Signal with Illustrations in Continuous Low-pass and Band-pass Filtering
Tucker S. McElroy and Thomas M. Trimbur
Abstract:
This paper sets out the theoretical foundations for continuous-time signal extraction in econometrics. Continuous-time modeling gives an effective strategy for treating stock and flow data, irregularly spaced data, and changing frequency of observation. We rigorously derive the optimal continuous-lag filter when the signal component is nonstationary, and provide several illustrations, including a new class of continuous-lag Butterworth filters for trend and cycle estimation.
Full Paper (Screen Reader Version)Keywords: Continuous time processes, cycles, Hodrick-Prescott filter, linear filtering, signal extraction, turning points
PDF: Full Paper
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