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

Robert J. Hill
University of Graz, Austria; robert.hill@uni-graz.at

Miriam Steurer
University of Graz, Austria; miriam.steurer@uni-graz.at

Sofie R. Waltl
Luxembourg Institute of Socio-Economic Research, Luxembourg & Vienna University of Economics and Business, Austria; sofie.waltl@liser.lu


The treatment of owner-occupied housing (OOH) is probably the most important unresolved issue in inflation measurement. The European Union in particular 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 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.

JEL.: C31; C43; E01; E31; E52; R31

Keywords: Measurement of inflation; Owner occupied housing; Quantile regression; Hedonic imputation; Housing booms and busts; Monetary policy


Working Paper:  [LISER Working Paper]

Presentations: [ESCoE Conference on Economic Measurement, Bank of England, May 2018] [STATEC, Luxembourg, April 2018] [NBER Conference on International Comparisons of Income, Prices and Production, MIT, Cambridge (MA), May 2016] [OeNB, Vienna, June 2016] [Oxford U, February 2017] [Institute of Fiscal Studies, London, May 2017] [GGDC 25th Anniversary Conference, Groningen, June 2017] [SEM conference at MIT, Cambridge (MA), July 2017]

Media Coverage: Die Presse (AT), Central Banking (UK)D’Lëtzeburger Land (LU)Lëtzebuerger Journal (LU)