The Infona portal uses cookies, i.e. strings of text saved by a browser on the user's device. The portal can access those files and use them to remember the user's data, such as their chosen settings (screen view, interface language, etc.), or their login data. By using the Infona portal the user accepts automatic saving and using this information for portal operation purposes. More information on the subject can be found in the Privacy Policy and Terms of Service. By closing this window the user confirms that they have read the information on cookie usage, and they accept the privacy policy and the way cookies are used by the portal. You can change the cookie settings in your browser.
In this paper the impact of Hodrick-Prescott (HP) filter on Least Squares Estimation is analyzed. It is shown that HP filter is able to produce spurious autocorrelation of error term and thus change the distribution of t-statistics. The danger consequences may accur not only when a unit root is present in the data but also when the autoregressive root is close to one. In empirical analyses it is thus preferable to use the differencing and methods in conformity with the stochastic properties of data generating process. Moreover, the paper postulates not to use HP filter when it is possible that there exists significant autocorrelation in the series.