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Owner Occupied Housing in the CPI and its Impact on Monetary Policy during Housing Booms and Busts

The treatment of owner-occupied housing (OOH) is probably the most important unresolved issue in inflation measurement. How -- and whether -- it is included in the Consumer Price Index (CPI) affects inflation expectations, the measured level of real interest rates, and the behavior of governments, central banks and market participants. We show that none of the existing treatments of OOH are fit for purpose. Hence we propose a new simplified user cost
method with better properties. Using a micro-level dataset, we then compare the empirical behavior of eight different treatments of OOH. Our preferred user cost approach pushes up the CPI during housing booms (by 2 percentage points or more). Our findings relate to the following important debates in macroeconomics: the behavior of the Phillips curve in the US during the global financial crisis, and the response of monetary policy to housing booms, secular
stagnation, and globalization. / Series: Department of Economics Working Paper Series

Identiferoai:union.ndltd.org:VIENNA/oai:epub.wu-wien.ac.at:7039
Date07 1900
CreatorsHill, Robert J., Steurer, Miriam, Waltl, Sofie R.
PublisherWU Vienna University of Economics and Business
Source SetsWirtschaftsuniversität Wien
LanguageEnglish
Detected LanguageEnglish
TypePaper, NonPeerReviewed
Formatapplication/pdf
Relationhttps://www.wu.ac.at/economics/forschung/wp, http://epub.wu.ac.at/7039/

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