Late Payment Fees and Nonpayment in Rental Markets, and Implications for Inflation Measurement: Theoretical Considerations and Evidence

Wesley Janson and Randal Verbrugge

No 20-22R2, Working Papers from Federal Reserve Bank of Cleveland

Abstract: Accurate rent measurement is essential for constructing a consumer price index (CPI) and for measuring household welfare. Late payment fees and nonpayment of rent are common components of rental expenditures and thus belong in CPIs. Late payment fees are often excluded; we offer a novel critique. In the US CPI, nonpayment is ostensibly included, but, we show, severely undermeasured. Moreover, the manner of its inclusion renders the CPI extremely sensitive to nonpayment variations; we show how to fix this. Nonpayment undermeasurement suggests at least a +1 ppt overestimate in 2020 CPI shelter inflation. Timely nonpayment and late fee measurement is challenging; we offer a practical solution.

Keywords: shelter inflation; nonpayment; eviction; COVID-19 collapse; CPI mismeasurement (search for similar items in EconPapers)
JEL-codes: E31 R31 R32 (search for similar items in EconPapers)
Pages: 26
Date: 2021-04-06, Revised 2023-11-06
New Economics Papers: this item is included in nep-mac and nep-mon
Note: Revised version of Working Paper 2020-22R which was posted April 6, 2021.
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DOI: 10.26509/frbc-wp-202022r2

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