Hodrick-Prescott (HP) Filter

DEFINITION of 'Hodrick-Prescott (HP) Filter'

A data-smoothing technique that is commonly applied to remove short-term fluctuations that are associated with the business cycle, thereby revealing long-term trends.

BREAKING DOWN 'Hodrick-Prescott (HP) Filter'

The HP filter is used to determine the long term trend of a time series by discounting the importance of short term price fluctuations. In practice it is used to smooth and detrend the Conference Board's Help Wanted Index (HWI) so that it can be benchmarked against the Bureau of Labor Statistic's JOLTS, an economic data series that may more accurately measure job vacancies in the U.S.

RELATED TERMS
  1. Benchmark

    A standard against which the performance of a security, mutual ...
  2. Bureau Of Labor Statistics (BLS)

    A government agency that produces a range of economic data which ...
  3. Detrend

    In forecasting models, the process of removing the effects of ...
  4. Organized Labor

    An association of workers united as a single, representative ...
  5. The Conference Board

    A not-for-profit research organization for businesses that distributes ...
  6. Help-Wanted Index - HWI

    The U.S. job market index, published monthly by the Conference ...
Related Articles
  1. Economics

    What You Need To Know About The Employment Report

    This widely watched indicator of economic well-being directly influences the market.
  2. Options & Futures

    Explaining The World Through Macroeconomic Analysis

    From unemployment and inflation to government policy, learn what macroeconomics measures and how it affects everyone.
  3. Investing

    How to Prepare for the Low Return Environment Ahead

    Learn about the big takeaway from this week’s chart: Investors aiming for higher returns over the next five years should be prepared to stomach more volatility.
  4. Active Trading Fundamentals

    SandRidge's 3 Key Financial Ratios (SDOC)

    Learn more about SandRidge Energy, Inc., a history of the company's performance and financial stability through key financial ratios and its future outlook.
  5. Economics

    A Statistic About the U.S. Economy that May Surprise You

    Learn why many commentators seem to be pessimistically focused on the U.S. economy’s weak wage growth and manufacturing sector trouble.
  6. Economics

    The Current Probability of President Donald Trump

    Predict the current odds of a Donald Trump presidency, and understand the factors that have kept him on top and the looming challenges he faces.
  7. Fundamental Analysis

    Calculating the Coefficient Of Variation (CV)

    Coefficient of variation measures the dispersion of data points around the mean, a statistical average.
  8. Markets

    The Market Chart You Need to See This Week

    This week’s chart helps show why current low levels of stock market volatility look unsustainable and why now is a good time to prepare portfolios for a rockier road ahead.
  9. Economics

    Explaining Pareto Efficiency

    Pareto efficiency is an economic state where resources are allocated in the most efficient manner.
  10. Fundamental Analysis

    Intro to Stationary and Non-Stationary Processes

    Refining data points is the key to applying financial series time data to stock analysis.
RELATED FAQS
  1. Do plane tickets get cheaper closer to the date of departure?

    Read about when to buy flights. See how statistics can predict optimal pricing. Read about price volatility over time. Learn ... Read Answer >>
  2. Is Colombia an emerging market economy?

    Learn the definition of an emerging market economy, and understand how Colombia, while not yet developed, meets the standards ... Read Answer >>
  3. What assumptions are made when conducting a t-test?

    Learn what a t-test is, and discover the five standard assumptions that are made regarding the validity of sampling and data ... Read Answer >>
  4. What are some of the more common types of regressions investors can use?

    Learn about the most common types of regressions investors use to model asset prices including linear regressions and multiple ... Read Answer >>
  5. What types of assets lower portfolio variance?

    Learn what type of assets reduce portfolio variance and how modern portfolio theory uses correlation coefficients. Read Answer >>
  6. When is it better to use systematic over simple random sampling?

    Learn when systematic sampling is better than simple random sampling, such as in the absence of data patterns and when there ... Read Answer >>
Hot Definitions
  1. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  2. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  3. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  4. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  5. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  6. Economies Of Scale

    Economies of scale is the cost advantage that arises with increased output of a product. Economies of scale arise because ...
Trading Center