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Rents have been rising, not falling, in the postwar period

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  • Theodore Crone
  • Leonard I. Nakamura
  • Richard Voith

Abstract

Until the end of 1977, the U.S. consumer price index for rents tended to omit rent increases when units had a change of tenants or were vacant, biasing inflation estimates downward. Beginning in 1978, the Bureau of Labor Statistics (BLS) implemented a series of methodological changes that reduced this nonresponse bias, but substantial bias remained until 1985. The authors set up a model of nonresponse bias, parameterize it, and test it using a BLS microdata set for rents. From 1940 to 1985, the official BLS CPI-W price index for tenant rents rose 3.6 percent annually; the authors argue that it should have risen 5.0 percent annually. Rents in 1940 should be only half as much as their official relative price; this has important consequences for historical measures of rent-house-price ratios and for the growth of real consumption. (Revision forthcoming in Review of Economics and Statistics.)

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Bibliographic Info

Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 08-28.

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Date of creation: 2008
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Handle: RePEc:fip:fedpwp:08-28

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Keywords: Rent;

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  1. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-36, July.
  2. David Genesove, 1999. "The Nominal Rigidity of Apartment Rents," NBER Working Papers 7137, National Bureau of Economic Research, Inc.
  3. Theodore M. Crone & Leonard I. Nakamura & Richard Voith, 2001. "Measuring American rents: a revisionist history," Working Papers 01-8, Federal Reserve Bank of Philadelphia.
  4. Ariel Pakes, 2003. "A Reconsideration of Hedonic Price Indexes with an Application to PC's," American Economic Review, American Economic Association, vol. 93(5), pages 1578-1596, December.
  5. Joshua Gallin, 2004. "The long-run relationship between house prices and rents," Finance and Economics Discussion Series 2004-50, Board of Governors of the Federal Reserve System (U.S.).
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Cited by:
  1. repec:fip:fedpwp:13-2 is not listed on IDEAS
  2. 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.
  3. Randal Verbrugge, 2009. "The Puzzling Divergence of Rents and User Costs, 1980-2004," Working Papers 422, U.S. Bureau of Labor Statistics.
  4. Garner, Thesia I. & Verbrugge, Randal, 2009. "Reconciling user costs and rental equivalence: Evidence from the US consumer expenditure survey," Journal of Housing Economics, Elsevier, vol. 18(3), pages 172-192, September.
  5. Leonard Nakamura, 2014. "Durable Financial Regulation: Monitoring Financial Instruments as a Counterpart to Regulating Financial Institutions," NBER Chapters, in: Measuring Wealth and Financial Intermediation and Their Links to the Real Economy National Bureau of Economic Research, Inc.
  6. Leonard Nakamura, 2012. "Durable financial regulation: monitoring financial instruments as a counterpart to regulating financial institutions," Working Papers 13-02, Federal Reserve Bank of Philadelphia.
  7. Marianna Kudlyak, 2012. "Housing services price inflation," Economic Quarterly, Federal Reserve Bank of Richmond, issue 3Q, pages 185-207.
  8. Makoto Nakajima, 2011. "Understanding house-price dynamics," Business Review, Federal Reserve Bank of Philadelphia, issue Q2, pages 20-28.
  9. Robert Poole & Randal Verbrugge, 2007. "Explaining the Rent-OER Inflation Divergence, 1999-2006," Working Papers 410, U.S. Bureau of Labor Statistics.
  10. Joshua Gallin & Randal Verbrugge, 2007. "Improving the CPI’s Age-Bias Adjustment: Leverage, Disaggregation and Model Averaging," Working Papers 411, U.S. Bureau of Labor Statistics.

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