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Rents Have Been Rising, Not Falling, in the Postwar Period

Author

Listed:
  • Theodore M. Crone

    (Swarthmore College)

  • Leonard I. Nakamura

    (Federal Reserve Bank of Philadelphia)

  • Richard Voith

    (Econsult Corporation)

Abstract

Until the end of 1977, the U.S. consumer price index (CPI) for rents tended to omit rent increases when units had a change of tenants or were vacant, biasing inflation estimates downward. Beginning in 1978, the Bureau of Labor Statistics (BLS) implemented a series of methodological changes that reduced this nonresponse bias, but substantial bias remained until 1985. We set up a model of nonresponse bias, parameterize it, and test it using BLS microdata. From 1940 to 1985, the official BLS CPI for urban wage earners and clerical workers (CPI-W) price index for tenant rents rose 3.6% annually; we argue that it should have risen 5.0% annually. © 2010 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Suggested Citation

  • Theodore M. Crone & Leonard I. Nakamura & Richard Voith, 2010. "Rents Have Been Rising, Not Falling, in the Postwar Period," The Review of Economics and Statistics, MIT Press, vol. 92(3), pages 628-642, August.
  • Handle: RePEc:tpr:restat:v:92:y:2010:i:3:p:628-642
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    References listed on IDEAS

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    1. Elliott, Graham, 1999. "Efficient Tests for a Unit Root When the Initial Observation Is Drawn from Its Unconditional Distribution," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(3), pages 767-783, August.
    2. Ariel Pakes, 2003. "A Reconsideration of Hedonic Price Indexes with an Application to PC's," American Economic Review, American Economic Association, pages 1578-1596.
    3. Perron, Pierre & Rodriguez, Gabriel, 2003. "GLS detrending, efficient unit root tests and structural change," Journal of Econometrics, Elsevier, vol. 115(1), pages 1-27, July.
    4. David Genesove, 2003. "The Nominal Rigidity of Apartment Rents," The Review of Economics and Statistics, MIT Press, pages 844-853.
    5. Theodore M. Crone & Leonard I. Nakamura & Richard Voith, 2001. "Measuring American rents: a revisionist history," Working Papers 01-8, Federal Reserve Bank of Philadelphia.
    6. Joshua H. Gallin, 2004. "The long-run relationship between house prices and rents," Finance and Economics Discussion Series 2004-50, Board of Governors of the Federal Reserve System (U.S.).
    7. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-836, July.
    8. David Genesove, 2003. "The Nominal Rigidity of Apartment Rents," The Review of Economics and Statistics, MIT Press, pages 844-853.
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    Citations

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    Cited by:

    1. Leonard Nakamura, 2014. "Durable Financial Regulation: Monitoring Financial Instruments as a Counterpart to Regulating Financial Institutions," NBER Chapters,in: Measuring Wealth and Financial Intermediation and Their Links to the Real Economy, pages 67-88 National Bureau of Economic Research, Inc.
    2. Garner, Thesia I. & Verbrugge, Randal, 2009. "Reconciling user costs and rental equivalence: Evidence from the US consumer expenditure survey," Journal of Housing Economics, Elsevier, vol. 18(3), pages 172-192, September.
    3. Jianjun Miao & Pengfei Wang & Tao Zha, 2014. "Liquidity Premia, Price-Rent Dynamics, and Business Cycles," NBER Working Papers 20377, National Bureau of Economic Research, Inc.
    4. Randal Verbrugge, 2008. "The Puzzling Divergence Of Rents And User Costs, 1980-2004," Review of Income and Wealth, International Association for Research in Income and Wealth, pages 671-699.
    5. Makoto Nakajima, 2011. "Understanding house-price dynamics," Business Review, Federal Reserve Bank of Philadelphia, issue Q2, pages 20-28.
    6. Robert Poole & Randal Verbrugge, 2007. "Explaining the Rent-OER Inflation Divergence, 1999-2006," Working Papers 410, U.S. Bureau of Labor Statistics.
    7. Joshua Gallin & Randal Verbrugge, 2007. "Improving the CPI’s Age-Bias Adjustment: Leverage, Disaggregation and Model Averaging," Working Papers 411, U.S. Bureau of Labor Statistics.
    8. Marianna Kudlyak, 2012. "Housing services price inflation," Economic Quarterly, Federal Reserve Bank of Richmond, issue 3Q, pages 185-207.
    9. 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.
    10. repec:bla:reesec:v:45:y:2017:i:3:p:591-627 is not listed on IDEAS
    11. Randal Verbrugge & Alan Dorfman & William Johnson & Fred Marsh III & Robert Poole & Owen Shoemaker, 2017. "Determinants of Differential Rent Changes: Mean Reversion versus the Usual Suspects," Real Estate Economics, American Real Estate and Urban Economics Association, pages 591-627.
    12. repec:fip:fedpwp:13-2 is not listed on IDEAS
    13. W. Erwin Diewert & Alice O. Nakamura, 2009. "Accounting for housing in a CPI," Working Papers 09-4, Federal Reserve Bank of Philadelphia.

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