Inflation and the Measurement of Saving and Housing Affordability
AbstractThis paper analyses the effect of inflation on the measurement of saving and housing affordability in New Zealand. When the inflation rate is positive, the income and saving of lenders is overstated and the saving of borrowers is understated because a portion of the interest earnings on capital are not true earnings but merely compensation for inflation. Because New Zealand has a large international debt position, this distortion means aggregate saving is understated, possibly by 2 percent of gross domestic product per year. In addition, a standard measure of the cost of financing the purchase of a house is overstated by approximately fifty percent, as a large part of mortgage payments are actually saving. Nevertheless, at the end of 2007 the cost of financing house purchase in New Zealand was at a cyclical high, approximately 40 percent higher than its average level since 1990.
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Bibliographic InfoPaper provided by Motu Economic and Public Policy Research in its series Working Papers with number 08_09.
Length: 21 pages
Date of creation: Jun 2008
Date of revision:
inflation; real interest rates; housing affordability;
Find related papers by JEL classification:
- E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
- E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-07-20 (All new papers)
- NEP-MAC-2008-07-20 (Macroeconomics)
- NEP-MON-2008-07-20 (Monetary Economics)
- NEP-URE-2008-07-20 (Urban & Real Estate Economics)
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.:
- John Y. Campbell & Joao F. Cocco, 2003.
"Household Risk Management And Optimal Mortgage Choice,"
The Quarterly Journal of Economics,
MIT Press, vol. 118(4), pages 1449-1494, November.
- John Y. Campbell & Joao F. Cocco, 2002. "Household Risk Management and Optimal Mortgage Choice," Harvard Institute of Economic Research Working Papers 1946, Harvard - Institute of Economic Research.
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- John Y. Campbell & Joao F. Cocco, 2003. "Household Risk Management and Optimal Mortgage Choice," NBER Working Papers 9759, National Bureau of Economic Research, Inc.
- John Campbell & Joao F. Cocco, 2002. "Household Risk Management and Optimal Mortgage Choice," Computing in Economics and Finance 2002 47, Society for Computational Economics.
- Campbell, John & Cocco, Joao, 2003. "Household Risk Management and Optimal Mortgage Choice," Scholarly Articles 3157876, Harvard University Department of Economics.
- Joao Cocco & John Campbell, 2004. "Household Risk Management and Optimal Mortgage Choice," Econometric Society 2004 North American Winter Meetings 632, Econometric Society.
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