Band-Pass Filters And Business Cycle Analysis: Highfrequency And Medium-Term Deviation Cycles In South Africa And What They Measure
Many analysts use band-pass filters to remove so-called permanent components from output and then study the remainder, which is then termed the "business cycle". Building on the critique of these deviation cycles by Harding and Pagan and on the recent work on the medium term persistence of business cycles by Comin and Gertler, the authors study the extent of information loss accompanying this practice. Specifically, they compare the properties of deviation cycles obtained when allowing and disallowing medium-run information to be included with the permanent component and show the dramatic differences in stylized facts. The paper then considers the economic context of high-frequency and medium-term deviation cycles.