It is common practice to compute measures of inflation (or output) gap usingHodrick–Prescott (HP) filtering to estimate the natural rate.We detrend the observed level of output with the HP filter. The potential output rate isderived from an HP filter with a 100 smoothing parameter (Hodrick and Prescott, 1997;see also Aizenman et al., 2011; Corbo et al., 2001; Lubik and Schorfheide, 2007). The inflation gap is the difference between the inflation rates and the trend target rate.