In this paper we focus on the problem of acoustic echo cancellation and noise reduction for hands-free telephony devices. A standard echo canceller is combined with a frequency domain post-filter, which applies a novel psychoacoustically motivated weighting rule. The algorithm makes use of the masking threshold of the human auditory system to achieve a perceived reduction of noise and residual echo equal to some pre-defined levels. In contrast to conventional methods, the proposed one preserves the nature of the original background noise and doesn't introduce any audible artifacts. At the same time it can attain a very high reduction of the residual echo.
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