Re-estimated FR-BDF: New Features and an Assessment of Monetary Policy Tightening in France

This paper presents the updated and re-estimated version of the Banque de France’s semi-structural FR-BDF model, the institution’s core framework for quarterly projections and policy scenario analysis. The update reflects major statistical and structural shifts, including INSEE’s transition to a 2020 base year and the volatility during the COVID-19 period. The re-estimated model features a lower capital share, a weaker underlying productivity trend, a steeper price Phillips curve along with a flatter wage Phillips curve, while adding a credit block and an enhanced consumption equation that captures short-run income effects. The updated FR-BDF delivers stronger and faster real effects of monetary policy — with larger GDP and unemployment responses due to amplified transmission through long-term rates and the exchange rate — while nominal responses are more muted. Using the updated model, the recent monetary tightening is assessed to lower VA inflation by –0.6 pp and reduce GDP growth by 1 pp (at trough) under backward-looking expectations, whereas under forward-looking expectations the responses are more front-loaded and nearly three times larger. Under the more realistic hybrid expectations mode, VA inflation falls by about 1.2 percentage points and GDP growth by roughly 2 percentage points at the trough. These magnitudes remain broadly consistent with benchmark assessments reported in the literature.