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The Pass‐Through of Gaps between Market Rent and the Price of Shelter

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  • Christopher D. Cotton

Abstract

The gap between market rent and the price of shelter was 6.6 percent larger in December 2023 relative to December 2019. Because shelter prices comprise 36 percent of the Consumer Price Index and therefore influence monetary policy decisions, it is vital to understand the pass‐through of this difference, or “market‐shelter gap.” I use MSA‐level variation to answer this question. When there is a positive market–shelter gap, the price of shelter grows faster and market rent grows slower until the gap closes, which takes about five years. Faster shelter‐price growth and slower market‐rent growth each explain about half of the convergence.

Suggested Citation

  • Christopher D. Cotton, 2024. "The Pass‐Through of Gaps between Market Rent and the Price of Shelter," Working Papers 24-6, Federal Reserve Bank of Boston.
    • Handle: RePEc:fip:fedbwp:98436
    DOI: 10.29412/res.wp.2024.06
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    References listed on IDEAS

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    1. John C. Driscoll & Aart C. Kraay, 1998. "Consistent Covariance Matrix Estimation With Spatially Dependent Panel Data," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 549-560, November.
    2. Matthias Doepke & Martin Schneider, 2006. "Inflation and the Redistribution of Nominal Wealth," Journal of Political Economy, University of Chicago Press, vol. 114(6), pages 1069-1097, December.
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    More about this item

    Keywords

    CPI; housing;

    JEL classification:

    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications

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