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House Prices In The Measurement Of Inflation In The Euro Area

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  • RÓISÍN O’SULLIVAN

Abstract

An important element of the current monetary policy debate in Europe is the question of if and how house prices should be included in the harmonized index of consumer prices (HICP). This paper uses a signal extraction approach to inflation measurement to illustrate the impact of including house prices when the aggregate inflation measure is constructed by assigning weights to individual price series based on their signal‐to‐noise ratio. The inclusion of house prices in the HICP in this manner does not materially impact the appropriate stance of monetary policy. (JEL E31, E52, E58)

Suggested Citation

  • Róisín O’Sullivan, 2008. "House Prices In The Measurement Of Inflation In The Euro Area," Contemporary Economic Policy, Western Economic Association International, vol. 26(2), pages 276-298, April.
    • Handle: RePEc:bla:coecpo:v:26:y:2008:i:2:p:276-298
    DOI: 10.1111/j.1465-7287.2007.00069.x
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    References listed on IDEAS

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    1. W. Erwin Diewert, 2002. "Harmonized Indexes of Consumer Prices: Their Conceptual Foundations," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 138(IV), pages 547-637, December.
    2. Boris Hofmann, 2004. "The Determinants of Bank Credit in Industrialized Countries: Do Property Prices Matter?," International Finance, Wiley Blackwell, vol. 7(2), pages 203-234, July.
    3. Ralf M. Fendel & Michael R. Frenkel, 2006. "Five Years Of Single European Monetary Policy In Practice: Is The Ecb Rule‐Based?," Contemporary Economic Policy, Western Economic Association International, vol. 24(1), pages 106-115, January.
    4. Gerlach-Kristen, Petra, 2003. "Interest rate reaction functions and the Taylor rule in the euro area," Working Paper Series 258, European Central Bank.
    5. Goodhart, Charles, 2001. "What Weight Should Be Given to Asset Prices in the Measurement of Inflation?," Economic Journal, Royal Economic Society, vol. 111(472), pages 335-356, June.
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    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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