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Implementing and interpreting indicators of core inflation: the case of France

Author

Listed:
  • Franck Sédillot

    (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany)

  • Hervé Le Bihan

    (Banque de France, 41-1391 DGEI-DEER-Centre de recherche, 31 rue Croix des Petits Champs, 75001 PARIS)

Abstract

This paper presents a comparison of alternative indicators of underlying or "core" inflation in the French case. Four broad measures are considered and implemented. The first two are inflation excluding food and energy, and the trimmed inflation indicator. We then implement two methods relying on time-series models: the Dynamic Factor Index and the structural VAR approach. Each indicator stresses on a particular type of shock on the inflation rate, so that no simple ranking of the measures emerges. Combining the various indicators conveys valuable information for appraising short term inflation developments. As regards theoretical interpretation, no indicator is fully satisfactory, lacking an explicit representation of monetary policy. However, comparing forecast performance with respect to inflation provides some specific support in favor of trimmed mean indicators.

Suggested Citation

  • Franck Sédillot & Hervé Le Bihan, 2002. "Implementing and interpreting indicators of core inflation: the case of France," Empirical Economics, Springer, vol. 27(3), pages 473-497.
    • Handle: RePEc:spr:empeco:v:27:y:2002:i:3:p:473-497
    Note: received: January 2000/Final version received: March 2001
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    Citations

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    Cited by:

    1. Jamie Hall & Jarkko P. Jääskelä, 2011. "Inflation Volatility and Forecast Accuracy," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 44(4), pages 404-417, December.
    2. repec:bla:germec:v:4:y:2003:i::p:269-306 is not listed on IDEAS
    3. Abdul Aleem & Amine Lahiani, 2011. "Estimation and evaluation of core inflation measures," Applied Economics, Taylor & Francis Journals, vol. 43(25), pages 3619-3629.
    4. Edward N. Gamber & Julie K. Smith, 2016. "Time-series measures of core inflation," Working Papers 2016-008, The George Washington University, Department of Economics, H. O. Stekler Research Program on Forecasting.
    5. De Bandt, Olivier & Mongelli, Francesco Paolo, 2000. "Convergence of fiscal policies in the euro area," Working Paper Series 0020, European Central Bank.
    6. Gamber, Edward N. & Smith, Julie K. & Eftimoiu, Raluca, 2015. "The dynamic relationship between core and headline inflation," Journal of Economics and Business, Elsevier, vol. 81(C), pages 38-53.
    7. Julie Smith, 2005. "Inflation targeting and core inflation," Canadian Journal of Economics, Canadian Economics Association, vol. 38(3), pages 1018-1036, August.
    8. Le Bihan, Herve & Sedillot, Franck, 2000. "Do core inflation measures help forecast inflation?: Out-of-sample evidence from French data," Economics Letters, Elsevier, vol. 69(3), pages 261-266, December.

    More about this item

    Keywords

    Core inflation; Trimmed mean estimators; Dynamic Factor Index;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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