Hodrick-Prescott (HP) Filter
Categories: Financial Theory
The Hodrick-Prescott (HP) filter is a discounting filter that smooths out data, so that the numbers pay no mind to short-term business fluctuations, leaving only smooth, long-term trends.
One regular use of the HP filter is the Conference Board Help Wanted Index (HWI), which measures how efficiently job supply and job demand are matching up. By removing short-term fluctuations with the Hodrick-Prescott filter, the HWI can be compared to the BLS’s Job Openings and Labor Turnover Survey (JOLTS).