Housing Rents and Inflation Rates
46 Pages Posted: 31 May 2016 Last revised: 14 Jan 2019
Date Written: December 17, 2018
This paper demonstrates that inflation rates are significantly modified when they are based on the alternative quality-adjusted measure of housing rents constructed from a monthly statistic of landlord net rental income. The official rate was overestimated by 1.7 to 4.2% annually during the Great Recession but underestimated by 0.3 to 0.9% annually during the current expansionary period. We further demonstrate significant impacts of the modified inflation rates on Social Security and real gross domestic product. These impacts persist for a long term because the modified indexes are integrated of order one whereas the official indexes are trend stationary.
Keywords: measurement error, economic statistics, owners' equivalent rent, Consumer Price Index, Personal Consumption Expenditures, National Income and Product Accounts
JEL Classification: E01, E31, R31, H55
Suggested Citation: Suggested Citation