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Owner-Occupied Housing, Inflation, and Monetary Policy

Robert Hill (), Miriam Steurer () and Sofie Waltl ()
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Miriam Steurer: University of Graz, Austria

No 2019-05, Graz Economics Papers from University of Graz, Department of Economics

Abstract: The treatment of owner-occupied housing (OOH) in the Consumer Price Index (CPI) affects inflation expectations, real interest rates, and hence market outcomes. After showing that none of the existing treatments of OOH are fit for purpose, we propose a new simplified user cost method with better properties. We then compare empirically eight treatments of OOH. Our preferred approach pushes up the CPI during housing booms. We relate our findings to the following macroeconomic debates: the disinflation puzzle, leaning against the wind, and the effectiveness of monetary policy in the presence of secular stagnation, the zero lower bound, and globalization.

Keywords: Measurement of inflation; Owner occupied housing; User cost; Rental equivalence; Hedonic quantile regression; Housing booms and busts; Inflation targeting; Disinflation puzzle; Leaning against the wind; Secular stagnation; Zero lower bound (search for similar items in EconPapers)
JEL-codes: C31 C43 E01 E31 E52 R31 (search for similar items in EconPapers)
Date: 2019-05
New Economics Papers: this item is included in nep-mac, nep-mon and nep-ure
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