Timothy K.M. Beatty, Erling Røed Larsen and Dag Einar Sommervoll () (Statistics Norway)
Abstract
Measuring change in the price of housing is an important and notoriously difficult task for national statistical agencies. Different approaches have been attempted, but suffer from known weaknesses. This article suggests dividing housing outlays into consumption and saving. The changes in prices of the consumption component are governed primarily by the purchasing price and the interest rate, and lead us to the construction of a consumption cost index. We show that over the lifespan of the mortgage, under some general assumptions, the price changes most relevant for inflation measurement can be obtained from a housing price index. The main challenge lies in computing weights for the housing consumption index. We demonstrate how this can be done in practice. An empirical example using data from Norway shows that over the 12-month period from June 2003 to June 2004 the official inflation was measured at 1.3%. This did not properly account for a 10.2% increase in house prices. The methodology proposed in this paper estimates the 12-month inflation at 3.4%.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
file. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number
427.
Find related papers by JEL classification: D1 - Microeconomics - - Household Behavior E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
This paper has been announced in the following NEP Reports:
Cited by: (explanations, 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.)
Did you know? Citation analysis on IDEAS includes online papers that are freely accessible and whose text could be automatically analyzed, currently about 150000 papers.