Hodrick-Prescott filter has been the favourite empirical technique among researchers studying "cycles". Software facilities and the optimality criterion, from which the filter can be derived, can explain its wide use. However, different shortcomings and drawbacks have been pointed out in the literature, as alteration of variability and persistence and detecting spurious cycles and correlations. This paper discusses these critics from an empirical point of view trying to clarify what the filter can and cannot do. In particular, a less mechanical use for descriptive analysis is proposed: testing how the estimated cyclical component behaves and using autocorrelation adjusted standard errors to evaluate cross correlations to differentiate the "genuine" from "spurious" case. Simulation results to test these bivariate correlations when there is a "genuine" relationship are presented. Some examples of descriptive analysis for macro aggregates (real activity, trade flows and money) of Argentina are reported to show that not always the filter is appropriate and simple tools could be used to appreciate how the filtered series result and to evaluate cross correlations.
This paper investigates whether or not a simple -Cagan like- econometric model of demand for currency can be developed for Argentina based on more than sixty years of data (1935-2000). For such a long period the presence of structural breaks cannot be ignored given the variety of economic regimes this country has experienced. The purpose is to understand from an "ex-post" perspective how money holdings have reacted to the two main determinants of their demand: a transaction variable and an opportunity cost after suitable approximations for both concepts could be obtained. Transaction elasticity estimates matter for the distribution effects of inflation tax and for measuring the size of the shadow economy. Besides, a comparative analysis of the effect of inflation, interest rates and exchange rates could clarify about the relevant opportunity cost of holding money. Once two values of the transaction elasticity were taken for the long run relationship (1 and 0.5) and inflation and interest rates alternatively measured the opportunity cost of holding money, a stable money demand -a satisfactory approximation to the data generating process- was obtained for the Argentina case.