Working Paper Series no. 69: Implementing and interpreting indicator of core inflation: the case of France

Abstract

This paper presents a comparison of alternative indicators of underlying inflation in the French case. Four broad measures are considered and implemented the first two of which are inflation excluding food and energy and the trimmed inflation indicator. We then implement two methods relying on time-series models: the Structural VAR approach and the Dynamic Factor Index. Combining the various indicators conveys valuable information for appraising short-term inflation developments. Nevertheless, even in the case of the structural VAR, the theoretical interpretation of underlying inflation is not straightforward, lacking an explicit representation of monetary policy.

Hervé Le Bihan and Franck Sédillot
December 1999

Keywords : Core inflation, Trimmed mean estimators, Dynamic Factor Index