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Accounting for homeownership in estimating real income growth

Breno Braga and Robert I. Lerman

Economics Letters, 2019, vol. 174, issue C, 9-12

Abstract: Have real median incomes in the U.S. stagnated or achieved modest growth? Answers often vary depending on the price index one uses. Several researchers have argued that the Consumer Price Index (CPI) overstates inflation and understates real income growth. The CPI’s approach to estimating homeowner shelter inflation is owners’ equivalent rent. In this paper, we investigate a user cost approach for estimating homeowner shelter cost inflation, addressing the expected appreciation challenge. We find that over the 1984–2016 period, using money income deflated by the official CPI understates real income growth substantially relative to the user cost approach.

Keywords: Consumer price index; Homeownership; Income growth (search for similar items in EconPapers)
JEL-codes: D1 E3 I3 (search for similar items in EconPapers)
Date: 2019
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