A new method to reduce unwanted ripples and revisions in trend-cycle estimates from X-11-ARIMA - ARCHIVED

The estimation of the trend-cycle with the X-11-ARIMA method is often done using the 13-term Henderson filter applied to seasonally adjusted data modified by extreme values. This filter however, produces a large number of unwanted ripples in the final or “historical” trend-cycle curve which are interpreted as false turning points. The use of a longer Henderson filter such as the 23-term is not an alternative for this filter is sluggish to detect turning points and consequently is not useful for current economic and business analysis. This paper proposes a new method that enables the use of the 13-term Henderson filter with the advantages of: (i) reducing the number of unwanted ripples; (ii) reducing the size of the revisions to preliminary values and (iii) no increase in the time lag to detect turning points. The results are illustrated with nine leading indicator series of the Canadian Composite Leading Index.