BdF updates FR-BDF model, simplifies forecasting with FR-BMEs
The Banque de France has updated its Basic Model Elasticities (BMEs) for the FR-BDF macroeconomic model and introduced FR-BMEs, a simplified forecasting platform. This new linearized model, based on the updated BMEs, has been used for interim projections since March 2024.
FR-BDF re-estimated, FR-BMEs streamline forecasts
The Banque de France's semi-structural macroeconomic model for France (FR-BDF) has undergone significant enhancements, including detailed blocks for household credit, housing markets, and corporate financing.
It was fully re-estimated in 2024 following the release of national accounts in base 2020.
The updated Basic Model Elasticities (BMEs) now reflect these improvements, providing analytical responses to isolated shocks that can be additively combined for scenario design.
Building on these BMEs, the paper introduces FR-BMEs, a simplified and linearized model.
This platform has been operational since March 2024 for the BdF's interim projection exercises in March and September, significantly improving operational efficiency compared to the comprehensive FR-BDF model used for semi-annual Eurosystem Broad Macroeconomic Projection Exercises.
Unpacking the 2024 GDP forecast error
While FR-BMEs enhances efficiency, it entails trade-offs, particularly a reduction in granularity for public finances and household income projections.
The paper illustrates the model's utility through a post-mortem analysis of the 2024 GDP growth forecast error from the December 2023 BdF projection.
Actual growth reached 1.1 percent against a forecast of 0.9 percent, resulting in a +0.2 percentage point error.
This discrepancy primarily reflects historical data revisions (+0.16pp) and, to a lesser extent, changes in Eurosystem assumptions (+0.05pp).
Revisions in public finance assumptions (+0.28pp) and expert judgment errors (-0.28pp) coincidentally offset each other.
Clarity for complex forecasts
This dual development significantly enhances the Banque de France's analytical capabilities, offering a more agile and transparent approach to macroeconomic forecasting.
The FR-BMEs model provides a robust framework for disentangling forecast errors and constructing internally consistent policy scenarios.
Ultimately, this ensures policymakers receive clearer, more interpretable insights into the French economy's dynamics.