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Volkswirtschaft - Open Access LMU - Teil 03/03 Podcast
Penalized Splines as Frequency Selective Filters - Reducing the Excess Variability at the Margins

Penalized Splines as Frequency Selective Filters - Reducing the Excess Variability at the Margins

Volkswirtschaft - Open Access LMU - Teil 03/03 vor 12 Jahren

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Penalized splines have become a popular tool to model the trend
component in economic time series. The outcome of the spline
predominantly depends on the choice of a penalization parameter
that controls the smoothness of the trend. This paper derives the
penalization of splines by frequency domain aspects and points out
their link to rational square wave filters. As a novel contribution
this paper focuses on the so called excess variability at the
margins that describes the undesired increasing variability of the
trend estimation to the ends of the series. It will be shown that
the too high volatility at the margins can be reduced considerably
by a time varying penalization, which yields more reliable
estimations for the most recent periods.