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Accounting for Housing in a CPI

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Author Info
Diewert, Erwin
Nakamura, Alice O.

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Abstract

Statistical agencies in different nations usually use the rental equivalence approach to the treatment of housing in their CPIs but a few countries use the user cost approach. The paper argues that an opportunity cost approach is the correct theoretical framework for accounting for OOH in a CPI. This approach, first mentioned in a 2006 OECD paper by Diewert, is developed more fully here. We explore the relationship of this new approach to the usual rental equivalency and user cost approaches. The new approach leads to an Owner Occupied Housing Opportunity Cost (OOHOC) index that is a weighted average of the rental and the financial opportunity costs.

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File URL: http://www.econ.ubc.ca/diewert/dp0908.pdf
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Publisher Info
Paper provided by UBC Department of Economics in its series UBC Departmental Archives with number erwin_diewert-2009-19.

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Length: 33 pages
Date of creation: 05 Mar 2009
Date of revision: 12 Mar 2009
Handle: RePEc:ubc:bricol:erwin_diewert-2009-19

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Related research
Keywords: Durable goods; Consumer Price Index; Cost of Living Index; Owner Occupied Housing; depreciation; hedonic regression models; rental equivalence approac;

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Find related papers by JEL classification:
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data
C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Microeconomic Data
D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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  1. Randal Verbrugge, 2008. "The Puzzling Divergence Of Rents And User Costs, 1980-2004," Review of Income and Wealth, Blackwell Publishing, vol. 54(4), pages 671-699, December. [Downloadable!] (restricted)
  2. Johannes Hoffmann & Jeong-Ryeol Kurz-Kim, 2006. "Consumer price adjustment under the microscope - Germany in a period of low inflation," Working Paper Series 652, European Central Bank. [Downloadable!]
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  3. Katz, Arnold J, 1983. "Valuing the Services of Consumer Durables," Review of Income and Wealth, Blackwell Publishing, vol. 29(4), pages 405-27, December.
  4. Christensen, Laurits R & Jorgenson, Dale W, 1969. "The Measurement of U.S. Real Capital Input, 1929-1967," Review of Income and Wealth, Blackwell Publishing, vol. 15(4), pages 293-320, December.
  5. Arturo Estrella, 2002. "Securitization and the efficacy of monetary policy," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 243-255. [Downloadable!]
  6. Dennis R. Capozza & Paul J. Seguin, 1995. "Expectations, Efficiency, and Euphoria in the Housing Market," NBER Working Papers 5179, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Carol Corrado & Charles Hulten & Daniel Sichel, 2005. "Measuring Capital and Technology: An Expanded Framework," NBER Chapters, in: Measuring Capital in the New Economy, pages 11-46 National Bureau of Economic Research, Inc. [Downloadable!]
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  8. Diewert, W E, 1974. "Intertemporal Consumer Theory and the Demand for Durables," Econometrica, Econometric Society, vol. 42(3), pages 497-516, May. [Downloadable!] (restricted)
  9. Patrick Bajari & C. Lanier Benkard & John Krainer, 2003. "House Prices and Consumer Welfare," NBER Working Papers 9783, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. Erwin Diewert, 2002. "Harmonized Indexes of Consumer Prices: their conceptual foundations," Working Paper Series 130, European Central Bank. [Downloadable!]
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  11. W. Erwin Diewert, 1980. "Aggregation Problems in the Measurement of Capital," NBER Chapters, in: The Measurement of Capital, pages 433-538 National Bureau of Economic Research, Inc. [Downloadable!]
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This page was last updated on 2009-10-30.

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