41 Pages Posted: 21 Dec 2010
Date Written: May 2003
In order to provide short run forecasts of headline and core HICP inflation for France, we assess the forecasting performance of a large set of economic indicators, individually and jointly, as well as using dynamic factor models. We run out-of-sample forecasts implementing the Stock and Watson (1999) methodology. It turns out that, according to usual statistical criteria, the combination of several indicators - in particular those derived from surveys- provides better results than dynamic factor models, even after pre-selection of the variables included in the panel. However, factors included in VAR models exhibit more stable forecasting performance over time. Results for HICP excluding unprocessed food and energy are very encouraging. Moreover, we show that it is possible to use forecasts on this indicator to project overall inflation.
Keywords: inflation, out-of-sample forecast, indicator models, dynamic factor models, Phillips curve
JEL Classification: C33, C53, E37
Suggested Citation: Suggested Citation
Bruneau, Catherine and de Bandt, Olivier and Flageollet, Alexis and Michaux, Emmanuel, Forecasting Inflation Using Economic Indicators: The Case of France (May 2003). Banque de France Working Paper No. 101. Available at SSRN: https://ssrn.com/abstract=1728700 or http://dx.doi.org/10.2139/ssrn.1728700