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Modelling French inflation: a macrosectoral approach

Author

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  • K. MILIN

    (Insee)

Abstract

This paper aims at presenting a macrosectoral model for French inflation. The macroeconometric model focuses on four main equations: value added prices, wages, intermediate consumption prices, and production prices. It provides consistent forecasts, consequently used to forecast underlying consumption prices. This model uses error correction modelling and has a few original characteristics compared to more standard frameworks. For example, intermediate consumption prices and production prices in the energy sector are treated apart, for a better control of oil prices volatility. Another original feature is to use value added prices as a wage deflator: this way, terms-of-trade effects are directly taken into account in the wage equation. Reaction functions have been simulated for several macroeconomic shocks: a 20% increase in oil prices, a 10% depreciation of the euro compared to others currencies, a 10% rise in agricultural and industrial raw materials, and 1% positive shocks on productivity, unemployment, taxes on production, operation grants, and the social contribution rate. All the impacts of exogenous shocks described in this paper should however be used cautiously, because second round effects on real supply and real demand are omitted in this framework.

Suggested Citation

  • K. Milin, 2017. "Modelling French inflation: a macrosectoral approach," Documents de Travail de l'Insee - INSEE Working Papers g2017-08, Institut National de la Statistique et des Etudes Economiques.
    • Handle: RePEc:nse:doctra:g2017-08
    as

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    File URL: https://www.bnsp.insee.fr/ark:/12148/bc6p06zrf9p/f1.pdf
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    References listed on IDEAS

    as
    1. Neil R. Ericsson & James G. MacKinnon, 2002. "Distributions of error correction tests for cointegration," Econometrics Journal, Royal Economic Society, vol. 5(2), pages 285-318, June.
    2. Cédric Audenis & Pierre Biscourp & Nicolas Riedinger, 2002. "Le prix des carburants est plus sensible à une hausse qu'à une baisse du brut," Économie et Statistique, Programme National Persée, vol. 359(1), pages 149-165.
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    More about this item

    Keywords

    forecasting; macroeconomic modelling; inflation; wage; France;
    All these keywords.

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications

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