Residential rents and price rigidity: Micro structure and macro consequences
AbstractWhy was the Japanese consumer price index for rents so stable even during the period of the housing bubble in the 1980s? To address this question, we use a unique micro price dataset which we have compiled from individual listings (or transactions) in a widely circulated real estate advertisement magazine. This dataset contains more than 700,000 listings of housing rents over the last 20 years. We start from the analysis of microeconomic rigidity and then investigate its implications for aggregate price dynamics, closely following the empirical strategy proposed by Caballero (Caballero and Engel, 2007). We find that 90% of the units in our dataset had no change in rents per year, indicating that rent stickiness is three times as high as in the United States. We also find that the probability of rent adjustment depends little on the deviation of the actual rent from its target level, suggesting that rent adjustments are not state-dependent but time-dependent. These two results indicate that both the intensive and extensive margins of rent adjustments are small, resulting in a slow response of the CPI for rent to aggregate shocks. We show that the CPI inflation rate would have been higher by 1% point during the bubble period, and lower by more than 1% point during the period following the burst of the bubble, if Japanese housing rents were as flexible as those in the United States.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of the Japanese and International Economies.
Volume (Year): 24 (2010)
Issue (Month): 2 (June)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/622903
Housing rents Price stickiness Time-dependent pricing State-dependent pricing Adjustment hazard;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Takatoshi Ito & Keiko Nosse Hirono, 1993. "Efficiency of the Tokyo Housing Market," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 11(1), pages 1-32, July.
- Ricardo J. Caballero & Eduardo M.R.A. Engel, 1992.
"Microeconomic Rigidities and Aggregate Price Dynamics,"
NBER Working Papers
4162, National Bureau of Economic Research, Inc.
- Caballero, Ricardo J. & Engel, Eduardo M. R. A., 1993. "Microeconomic rigidities and aggregate price dynamics," European Economic Review, Elsevier, vol. 37(4), pages 697-711, May.
- Hoffmann, Johannes & Kurz-Kim, Jeong-Ryeol, 2006.
"Consumer price adjustment under the microscope: Germany in a period of low inflation,"
Discussion Paper Series 1: Economic Studies
2006,16, Deutsche Bundesbank, Research Centre.
- Hoffmann, Johannes & Kurz-Kim, Jeong-Ryeol, 2006. "Consumer price adjustment under the microscope: Germany in a period of low inflation," Working Paper Series 0652, European Central Bank.
- David Genesove, 2003.
"The Nominal Rigidity of Apartment Rents,"
The Review of Economics and Statistics,
MIT Press, vol. 85(4), pages 844-853, November.
- Ben Eden & Jeff Campbell, 2004.
"Rigid Prices: Evidence from US scanner data,"
2004 Meeting Papers
461, Society for Economic Dynamics.
- Mark Bils & Peter J. Klenow, 2004.
"Some Evidence on the Importance of Sticky Prices,"
Journal of Political Economy,
University of Chicago Press, vol. 112(5), pages 947-985, October.
- Ricardo J. Caballero & Eduardo M.R.A. Engel, 2007.
"Price Stickiness in Ss Models: New Interpretations of Old Results,"
Cowles Foundation Discussion Papers
1603, Cowles Foundation for Research in Economics, Yale University.
- Caballero, Ricardo J. & Engel, Eduardo M.R.A., 2007. "Price stickiness in Ss models: New interpretations of old results," Journal of Monetary Economics, Elsevier, vol. 54(Supplemen), pages 100-121, September.
- Ricardo J. Caballero & Eduardo M.R.A. Engel, 2007. "Price Stickiness in Ss Models: New Interpretations of Old Results," NBER Working Papers 12945, National Bureau of Economic Research, Inc.
- Ricardo J. Caballero & Eduardo M.R.A. Engel, 2007. "Price Stickiness in Ss Models: New Interpretations of Old Results," Working Papers 952, Economic Growth Center, Yale University.
- Ricardo J. Caballero & Eduardo M.R.A. Engel, 2007. "Price Stickiness in Ss Models: New Interpretations of Old Results," Levine's Bibliography 321307000000000856, UCLA Department of Economics.
- Eduardo Engel & Ricardo Caballero, 2007. "Price stickiness in Ss models: new interpretations for old results," 2007 Meeting Papers 903, Society for Economic Dynamics.
- Diewert, Erwin & Nakamura, Alice O., 2009.
"Accounting for Housing in a CPI,"
Economics working papers
erwin_diewert-2009-19, Vancouver School of Economics, revised 12 Mar 2009.
- Emi Nakamura & Jón Steinsson, 2008. "Five Facts about Prices: A Reevaluation of Menu Cost Models," The Quarterly Journal of Economics, MIT Press, vol. 123(4), pages 1415-1464, November.
- C. Goodhart, 2001. "What Weight Should be Given to Asset Prices in the Measurementof Inflation?," DNB Staff Reports (discontinued) 65, Netherlands Central Bank.
- 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 F335-56, June.
- Chihiro Shimizu & Kiyohiko Nishimura, 2007. "Pricing Structure in Tokyo Metropolitan Land Markets and its Structural Changes: Pre-bubble, Bubble, and Post-bubble Periods," The Journal of Real Estate Finance and Economics, Springer, vol. 35(4), pages 475-496, November.
- Caballero, Ricardo J & Engel, Eduardo M R A, 1993.
"Microeconomic Adjustment Hazards and Aggregate Dynamics,"
The Quarterly Journal of Economics,
MIT Press, vol. 108(2), pages 359-83, May.
- Ricardo J. Caballero & Eduardo M.R.A. Engel, 1992. "Microeconomic Adjustment Hazards and Aggregate Dynamics," NBER Working Papers 4090, National Bureau of Economic Research, Inc.
- Robert J. Gordon & Todd vanGoethem, 2005. "A Century of Housing Shelter Prices: Is There a Downward Bias in the CPI?," NBER Working Papers 11776, National Bureau of Economic Research, Inc.
- Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
- Theodore M. Crone & Leonard I. Nakamura & Richard P. Voith, 2004. "Hedonic estimates of the cost of housing services: rental and owner-occupied units," Working Papers 04-22, Federal Reserve Bank of Philadelphia.
- Ko, Jun-Hyung, 2011. "Optimal monetary policy with durable services: user cost versus purchase price," MPRA Paper 34147, University Library of Munich, Germany.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If references are entirely missing, you can add them using this form.