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Owner-Occupied Housing, Inflation, and Monetary Policy

Author

Listed:
  • Robert J. Hill

    (University of Graz, Austria)

  • Miriam Steurer

    (University of Graz, Austria)

  • Sofie R. Waltl

    (Luxembourg Institute of Socio-Economic Research, Luxembourg)

Abstract

The treatment of owner-occupied housing (OOH) in the Consumer Price Index (CPI) affects inflation expectations, real interest rates, and hence market outcomes. After showing that none of the existing treatments of OOH are fit for purpose, we propose a new simplified user cost method with better properties. We then compare empirically eight treatments of OOH. Our preferred approach pushes up the CPI during housing booms. We relate our findings to the following macroeconomic debates: the disinflation puzzle, leaning against the wind, and the effectiveness of monetary policy in the presence of secular stagnation, the zero lower bound, and globalization.

Suggested Citation

  • Robert J. Hill & Miriam Steurer & Sofie R. Waltl, 2019. "Owner-Occupied Housing, Inflation, and Monetary Policy," Graz Economics Papers 2019-05, University of Graz, Department of Economics.
    • Handle: RePEc:grz:wpaper:2019-05
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    Cited by:

    1. Robert J. Hill & Norbert Pfeifer & Miriam Steurer & Radoslaw Trojanek, 2021. "Warning: Some Transaction Prices can be Detrimental to your House Price Index," Graz Economics Papers 2021-11, University of Graz, Department of Economics.
    2. Alfons J. Weichenrieder & Eren Gürer, 2020. "Inflation, Inflationsmessung und Zentralbankpolitik," Wirtschaftsdienst, Springer;ZBW - Leibniz Information Centre for Economics, vol. 100(11), pages 834-838, November.
    3. Cathal Coffey & Kieran McQuinn & Conor O'Toole, 2022. "Rental equivalence, owner‐occupied housing, and inflation measurement: Microlevel evidence from Ireland," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 50(4), pages 990-1021, December.
    4. Denisa Naidin & Sofie R. Waltl & Michael Ziegelmeyer, 2022. "Objectified Housing Sales and Rent Prices in Representative Household Surveys: the Impact on Macroeconomic Statistics," LISER Working Paper Series 2022-03, Luxembourg Institute of Socio-Economic Research (LISER).
    5. Manner, Hans & Rodríguez, Gabriel & Stöckler, Florian, 2024. "A changepoint analysis of exchange rate and commodity price risks for Latin American stock markets," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 1385-1403.
    6. Lopez, Luis A. & Yoshida, Jiro, 2022. "Estimating housing rent depreciation for inflation adjustments," Regional Science and Urban Economics, Elsevier, vol. 95(C).

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    More about this item

    Keywords

    Measurement of inflation; Owner occupied housing; User cost; Rental equivalence; Hedonic quantile regression; Housing booms and busts; Inflation targeting; Disinflation puzzle; Leaning against the wind; Secular stagnation; Zero lower bound;
    All these keywords.

    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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