Professor James D. Hamilton requires no introduction, having
been one of the most important researchers in time series econometrics for
decades.
Over the past few years, Hamilton has been working on a
paper calling on applied economists to abandon the ubiquitous Hodrick-Prescott
Filter and replace it with a much simpler method of extracting trend and cycle
information from a time series.
This paper has become popular, and a number of our users
have asked how to replicate it in EViews. One of our users, Greg Thornton, has
written an EViews add-in (called Hamilton) that performs Hamilton’s method. However, given its relative simplicity, we
thought we’d use a blog post to show manual calculation of the method and
replicate the results in Hamilton’s paper.
