Owner Occupied Housing in the CPI and Its Impact on Monetary Policy During Housing Booms and Busts

Luxembourg Institute of Socio-Economic Research (LISER) Working Paper No. 2018-05

72 Pages Posted: 16 Feb 2018

See all articles by Robert J. Hill

Robert J. Hill

University of Graz

Miriam Steurer

University of Graz - Institute of Public Economics

Sofie R. Waltl

Vienna University of Economics and Business

Date Written: February 5, 2018

Abstract

The treatment of owner-occupied housing (OOH) is probably the most important unresolved issue in inflation measurement. The European Union has been grappling with this problem for over a decade. We argue for measuring OOH costs using a particular version of the user cost method. We then compare the impact of eight different treatments of OOH on the consumer price index (CPI), using quantile hedonic regression. The impact on the CPI is large, and the treatment of OOH emerges as an essential prerequisite to discussions over how an inflation targeting central bank should respond to housing booms and busts.

Keywords: Measurement of inflation, Owner occupied housing, User cost, Quantile regression, Hedonic imputation, Housing booms and busts, Inflation targeting

JEL Classification: C31, C43, E01, E31, E52, R31

Suggested Citation

Hill, Robert J. and Steurer, Miriam and Waltl, Sofie R., Owner Occupied Housing in the CPI and Its Impact on Monetary Policy During Housing Booms and Busts (February 5, 2018). Luxembourg Institute of Socio-Economic Research (LISER) Working Paper No. 2018-05, Available at SSRN: https://ssrn.com/abstract=3118152 or http://dx.doi.org/10.2139/ssrn.3118152

Robert J. Hill (Contact Author)

University of Graz ( email )

Universitaetsstrasse 15 / FE
A-8010 Graz, 8010
Austria

Miriam Steurer

University of Graz - Institute of Public Economics ( email )

Graz
Austria

Sofie R. Waltl

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

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