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Residential rents and price rigidity: Micro structure and macro consequences

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  • Shimizu, Chihiro
  • Nishimura, Kiyohiko G.
  • Watanabe, Tsutomu

Abstract

Why 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.

Suggested Citation

  • Shimizu, Chihiro & Nishimura, Kiyohiko G. & Watanabe, Tsutomu, 2010. "Residential rents and price rigidity: Micro structure and macro consequences," Journal of the Japanese and International Economies, Elsevier, vol. 24(2), pages 282-299, June.
  • Handle: RePEc:eee:jjieco:v:24:y:2010:i:2:p:282-299
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Ko, Jun-Hyung, 2011. "Optimal monetary policy with durable services: user cost versus purchase price," MPRA Paper 34147, University Library of Munich, Germany.
    2. Miyakoshi, Tatsuyoshi & Shimada, Junji & Li, Kui-Wai, 2016. "The impacts of the 2008 and 2011 crises on the Japan REIT market," Journal of the Japanese and International Economies, Elsevier, vol. 41(C), pages 30-40.
    3. Ambrose, Brent W. & Coulson, N. Edward & Yoshida, Jiro, 2017. "Inflation Rates Are Very Different When Housing Rents Are Accurately Measured," HIT-REFINED Working Paper Series 71, Institute of Economic Research, Hitotsubashi University.
    4. Shimizu, Chihiro & Yasumoto, Shinya & Asami, Yasushi & Clark, Terry Nichols, 2014. "Do Urban Amenities Drive Housing Rent?," HIT-REFINED Working Paper Series 9, Institute of Economic Research, Hitotsubashi University.

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