Working Paper Series no. 262: Forecasting inflation in France.

Abstract

The paper develops a model for forecasting inflation in France. As this model has to be integrated in the Eurosystem projection exercises, the projections are conditional to specific assumptions and must be consistent with the Macroeconomic projection exercise of the Banque de France. The specification of the model is thus highly constrained. The theoretical foundations of the model are based on the markup model for prices, but the resulting empirical model also has elements relating to the purchasing power parity and the Phillips curve. The model aggregates forecasts of the main HICP subcomponents. We show that the model exhibits better performance than a standard AR(4) model.

Claire Célérier
December 2009

Classification JEL : C52, C53, E37.

Keywords : Inflation, Out-of-sample forecast, Economic modelling.