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House Prices in the Measurement of Inflation - An Application Using Irish Data

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  • Róisín O’Sullivan

    (Smith College, Massachusetts)

Abstract

This paper illustrates the impact on Irish inflation of including a house-price series with the current components of the harmonised index of consumer prices (HICP). We construct a dynamic factor index of inflation that weights the individual price series according to the strength of their signal about the common trend in prices. As the relatively noisy house-price series attracts a weight of only 3 per cent in the index, the inclusion of house prices in this way does not hugely alter the recent pattern of inflation for Ireland, despite house prices exhibiting much stronger growth on average than the current measure of consumer prices.

Suggested Citation

  • Róisín O’Sullivan, 2005. "House Prices in the Measurement of Inflation - An Application Using Irish Data," The Economic and Social Review, Economic and Social Studies, vol. 36(2), pages 157-178.
  • Handle: RePEc:eso:journl:v:36:y:2005:i:2:p:157-178
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    File URL: http://www.esr.ie/Vol36_2/04_O%27Sullivan_Article.pdf
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    References listed on IDEAS

    as
    1. Mark A. Wynne, 2008. "Core inflation: a review of some conceptual issues," Review, Federal Reserve Bank of St. Louis, issue May, pages 205-228.
    2. Paul D. Gilbert & Lise Pichette, 2003. "Dynamic Factor Analysis for Measuring Money," Staff Working Papers 03-21, Bank of Canada.
    3. DETKEN Carsten & SMETS Frank, "undated". "Asset Price Booms and Monetary Policy," EcoMod2003 330700042, EcoMod.
    4. Donnery, Sharon, 2003. "Money Supply in Ireland," Quarterly Bulletin Articles, Central Bank of Ireland, pages 73-95, October.
    5. Shiratsuka, Shigenori, 1999. "Asset Price Fluctuation and Price Indices," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 17(3), pages 103-128, December.
    6. Michael F. Bryan & Stephen G. Cecchetti, 1993. "The consumer price index as a measure of inflation," Economic Review, Federal Reserve Bank of Cleveland, issue Q IV, pages 15-24.
    7. M.F. Bryan & S.G. Cecchetti & R. O'Sullivan, 2001. "Asset Prices in the Measurement of Inflation," DNB Staff Reports (discontinued) 62, Netherlands Central Bank.
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