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What Weight Should Be Given to Asset Prices in the Measurement of Inflation?

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Author Info
Goodhart, Charles
Abstract

Besides the theoretical (Alchian/Klein, 1973) case for including asset prices in measures of inflation, there is also a practical case, that some asset prices, notably housing, are closely associated with the main trends in inflation, and via "bubbles and busts" with output disturbances. Attempts to use the pure Alchian/Klein methodology in practice give excessive weight to unstable asset prices, but there are more appropriate weighting schemes, derived either from econometrically measured relationships or from final expenditures. Either way, the statistical treatment of housing is crucial, and is being discussed in Eurostat.

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Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 111 (2001)
Issue (Month): 472 (June)
Pages: F335-56
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Handle: RePEc:ecj:econjl:v:111:y:2001:i:472:p:f335-56

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  14. Abdelaziz Rouabah, 2006. "L'identité de Fisher et l'interaction entre l'inflation et la rentabilité des actions: l'importance des régimes sous-jacents aux marchés boursiers," BCL working papers cahier_etude_18, Central Bank of Luxembourg. [Downloadable!]
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  18. Michael Parkin, 2009. "What is the Ideal Monetary Policy Regime? Improving the Bank of Canada's Inflation-targeting Program," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 279, January. [Downloadable!]
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  20. Anna J. Schwartz, 2002. "Asset Price Inflation and Monetary Policy," NBER Working Papers 9321, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  21. Ricardo Reis, 2005. "A Dynamic Measure of Inflation," NBER Working Papers 11746, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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