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Forecasting inflation using economic indicators: the case of France

✍ Scribed by C. Bruneau; O. De Bandt; A. Flageollet; E. Michaux

Publisher
John Wiley and Sons
Year
2007
Tongue
English
Weight
470 KB
Volume
26
Category
Article
ISSN
0277-6693

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✦ Synopsis

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. We find that, according to usual statistical criteria, the combination of several indicatorsβ€”in particular those derived from surveysβ€”provides better results than 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 the HICP excluding unprocessed food and energy are very encouraging. Moreover, we show that the aggregation of forecasts on subcomponents exhibits the best performance for projecting total inflation and that it is robust to data snooping.  Copyright Β© 2007 John Wiley & Sons, Ltd.

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