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Forecasting inflation using economic indicators: the case of France
Author(s) -
Bruneau C.,
De Bandt O.,
Flageollet A.,
Michaux E.
Publication year - 2007
Publication title -
journal of forecasting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.543
H-Index - 59
eISSN - 1099-131X
pISSN - 0277-6693
DOI - 10.1002/for.1001
Subject(s) - econometrics , core inflation , inflation (cosmology) , dynamic factor , headline , economics , factor analysis , stock (firearms) , model selection , set (abstract data type) , economic forecasting , economic indicator , computer science , statistics , inflation targeting , monetary policy , macroeconomics , mathematics , mechanical engineering , linguistics , philosophy , physics , theoretical physics , engineering , programming language
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 indicators—in particular those derived from surveys—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 © 2007 John Wiley & Sons, Ltd.