Housing Rents and Inflation Rates
35 Pages Posted: 31 May 2016 Last revised: 18 Aug 2020
Date Written: August 1, 2020
This paper demonstrates that inflation rates are significantly modified when they are based on an alternative quality-adjusted measure of housing rents constructed from a monthly statistic of landlord net rental income. During the Great Recession, the official rate was overestimated by 1.7 to 4.1% annually but underestimated by 0.3 to 0.8% annually afterwards. These impacts persist for a long term because the modified indexes are integrated of order one whereas the official indexes are trend stationary.
Keywords: measurement error, economic statistics, owners' equivalent rent, Consumer Price Index, Personal Consumption Expenditures, National Income and Product Accounts
JEL Classification: E01, E31, R31, H55
Suggested Citation: Suggested Citation