Forecasting Inflation Using Economic Indicators: The Case of France

41 Pages Posted: 21 Dec 2010  

Catherine Bruneau

Université Paris X Nanterre; Université Paris I Panthéon-Sorbonne

Olivier de Bandt

Banque de France - Economic Study and Research Division

Alexis Flageollet

NATIXIS Asset Management

Emmanuel Michaux

affiliation not provided to SSRN

Date Written: May 2003

Abstract

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

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

Catherine Bruneau (Contact Author)

Université Paris X Nanterre ( email )

Room G301, Building G
92001 Nanterre Cedex, 92001
France

Université Paris I Panthéon-Sorbonne ( email )

17, rue de la Sorbonne
Paris, IL 75005
France

Olivier De Bandt

Banque de France - Economic Study and Research Division ( email )

31, rue Croix des Petits Champs
75049 Paris Cedex 01
FRANCE
(33 1) 42 92 28 80 (Phone)
(33 1) 42 92 27 66 (Fax)

Alexis Flageollet

NATIXIS Asset Management ( email )

21 Quai d'Austerlitz
Paris, 75013
France

Emmanuel Michaux

affiliation not provided to SSRN ( email )

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