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
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: Suggested Citation