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Rents have been rising, not falling, in the postwar period

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  • Bridget Cronin
  • Leonard I. Nakamura
  • Richard Voith

Abstract

Until the end of 1977, the U.S. consumer price index 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. The authors set up a model of nonresponse bias, parameterize it, and test it using a BLS microdata set for rents. From 1940 to 1985, the official BLS CPI-W price index for tenant rents rose 3.6 percent annually; the authors argue that it should have risen 5.0 percent annually. Rents in 1940 should be only half as much as their official relative price; this has important consequences for historical measures of rent-house-price ratios and for the growth of real consumption. (Revision forthcoming in Review of Economics and Statistics.)

Suggested Citation

  • Bridget Cronin & Leonard I. Nakamura & Richard Voith, 2008. "Rents have been rising, not falling, in the postwar period," Working Papers 08-28, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:08-28
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    References listed on IDEAS

    as
    1. Theodore M. Crone & Leonard I. Nakamura & Richard Voith, 2001. "Measuring American rents: a revisionist history," Working Papers 01-8, Federal Reserve Bank of Philadelphia.
    2. 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.
    3. Ariel Pakes, 2003. "A Reconsideration of Hedonic Price Indexes with an Application to PC's," American Economic Review, American Economic Association, vol. 93(5), pages 1578-1596, December.
    4. 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.).
    5. Price Statistics Review Committee, 1961. "The Consumer Price Index," NBER Chapters, in: The Price Statistics of the Federal Goverment, pages 51-60, National Bureau of Economic Research, Inc.
    6. David Genesove, 2003. "The Nominal Rigidity of Apartment Rents," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 844-853, November.
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