Reading Task - (Hodrick and Prescott (1997), \"Postwar U.S. Business Cycles: An Empirical Investigation\

Reading Task - (Hodrick and Prescott (1997), "Postwar U.S. Business Cycles: An Empirical Investigation", Journal of Money, Credit and Banking (35%). Please locate the journal article from the CUHK library online. This is a classic paper focused on developing stylized facts regarding the business cycle using post-War US economic data. Please read the entire article and then answer the following questions: (a) Write down and briefly explain the HP Filter equation using the notation from the original article (1-2 paragraphs). (10 marks) (b) Summarize the article's key empirical results regarding the behavior of aggregate demand compo- nents and factors of production listed on Tables 2-4. Be sure to discuss the criteria mentioned in class: l. Relative volatility to GNP; 2. Degree of pro-cyclicality (correlation); and 3. stability of the relationship (2-3 paragraphs). (15 marks) (c) Is the following statement true or false or uncertain? "All consumption categories display con- sumption smoothing" Justify your answer based on data contained in the article and using your economic knowledge. (I-paragraph). (5 marks) (d) Is the following statement true or false or uncertain? "Housing is less volatile than total investment as it is a consumer good". Justify your answer based on data contained in the article and using your economic knowledge. (I-paragraph). (5 marks)