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.

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