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Owner-Occupied Housing Costs and Bias in the Irish Consumer Price Index

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  • Colm McCarthy

    (University College of Dublin)

Abstract

The treatment of owner-occupied housing costs is a recurring problem in the construction of consumer price indices, and there are competing methodologies. In the most widely-used Irish index, the Payments Approach, which attaches a weight to a term involving historical house prices and an interest rate, is used to measure these costs. It is argued that this has resulted in a substantial over-statement of inflation in recent quarters, and that the over-statement will continue for some time. The Irish version of Eurostat’s Harmonised Index of Consumer Prices, recently running well below the CPI, is a more reliable guide. Few national statistical offices use the Payments Approach, and it is argued that the procedure used in Ireland should be reviewed.

Suggested Citation

  • Colm McCarthy, 2007. "Owner-Occupied Housing Costs and Bias in the Irish Consumer Price Index," Working Papers 200707, School of Economics, University College Dublin.
    • Handle: RePEc:ucn:wpaper:200707
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    File URL: http://www.ucd.ie/economics/research/papers/2007/WP07.07.pdf
    File Function: First version, 2007
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    References listed on IDEAS

    as
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    5. Ian Crawford & Isabella Image, 2004. "The Retail Price Index and the Cost-of-Living Index: testing for consistency in theory and practice," Fiscal Studies, Institute for Fiscal Studies, vol. 25(1), pages 79-91, March.
    6. Triplett, Jack E, 2001. "Should the Cost-of-Living Index Provide the Conceptual Framework for a Consumer Price Index?," Economic Journal, Royal Economic Society, vol. 111(472), pages 311-334, June.
    7. Arévalo, Raquel, 2004. "The rental equivalence approach to nonrental housing in the consumer price index. evidence from Spain," UC3M Working papers. Economics we041704, Universidad Carlos III de Madrid. Departamento de Economía.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Mark A. Wynne, 2008. "How should central banks define price stability?," Globalization Institute Working Papers 08, Federal Reserve Bank of Dallas.
    2. Deutsch Tomi, 2016. "Statistical Capacity Building of Official Statisticians in Practice: Case of the Consumer Price Index," Journal of Official Statistics, Sciendo, vol. 32(4), pages 827-848, December.
    3. Colm McCarthy, 2010. "Economic Aspects of Personal Injury Compensation in Ireland," Working Papers 201023, School of Economics, University College Dublin.

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    More about this item

    Keywords

    Consumer Price Index; Cost of Living Index; Payments Approach; Owner-Occupied Housing;
    All these keywords.

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • C82 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data; Data Access
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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