Low Pass IIR filter using cyclone II FPGA

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b0y(n)=a0x(n)+a1x(n-1)+...+a7x(n-7)+b1y(n-1)+b2y(n-2)+...+b7y(n-7)

I want to know which is the best way to represent coefficients ai, bi, i=0...7?

Maybe like a signed number with a fixed point?

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Yes. In fact other than fixed point, you don't have any choice while working on FPGA.

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And with how many bits? Is it 16bits enough?

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The precision depends on your application. For example, if you want to export the output to a 12-bit port, probably you would like to use 16-bit coefficients while calculating the output (as you would be scaling down your output later on). If you are just making a generic filter for your own testing purposes, you can easily check the performance with a 12-16 bit coeff filter.