The CPI for rents: a case of understated inflation

Theodore M. Crone, Leonard Nakamura and Richard Voith

No 06-7, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: Until the end of 1977, the U.S. consumer price index for rents tended to omit rent increases when units had a change of tenants or were vacant, biasing inflation estimates downward. Beginning in 1978, the Bureau of Labor Statistics (BLS) implemented a series of methodological changes that reduced this nonresponse bias, but substantial bias remained until 1985. The authors set up a model of nonresponse bias, parameterize it, and test it using a BLS microdata set for rents. From 1940 to 1985, the official BLS CPI-W price index for tenant rents rose 3.6 percent annually; the authors argue that it should have risen 5.0 percent annually. Rents in 1940 should be only half as much as their official relative price; this has important consequences for historical measures of rent-house-price ratios and for the growth of real consumption.

Keywords: Consumer price indexes; Rent; Inflation (Finance) (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (7)

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Working Paper: The CPI for rents: a case of understated inflation (2004)
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