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While we have lots of data on labour markets and the capital stock, we economists still...

While we have lots of data on labour markets and the capital stock, we economists still need to rely on filters, like that proposed by Hodrick and Prescott, to calculate the business cycle. True, False or uncertain?

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Answer #1

True.

The Hodrick-Prescott Filter is a technique used for data-smoothing. This filter is commonly applied during analysis of variables to remove short-term fluctuations that are associated with the business cycle. By removing these short-term fluctuations the long-term trends are revealed . This filter helps the economist to analyse the economic or other forecasting associated with the business cycle.

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