Owner-occupied Housing Costs, Policy Communication, and Inflation Expectations

43 Pages Posted: 9 May 2024

See all articles by Joris Wauters

Joris Wauters

National Bank of Belgium

Z. Zekaite

Central Bank of Ireland

Garo Garabedian

Central Bank of Ireland

Date Written: April 10, 2024

Abstract

The ECB concluded its strategy review in 2021 with a plan to include owner-occupied housing (OOH) costs in its inflation measure in the future. This paper uses the Bundesbank's online household panel to study how household expectations would react to this change. We conducted a survey experiment with different information treatments and compared long-run expectations for euro area overall inflation, interest rates, and OOH inflation. Long-run expectations are typically higher for OOH inflation than overall inflation, and both are unanchored from the ECB's target at the time of the survey. We find significantly higher inflation expectations under the treatment where OOH costs are assumed to be fully included in the inflation measure. This information effect is heterogeneous as, among others, homeowners and respondents with low trust in the ECB react more strongly. However, inflation expectations remain stable when information about past OOH inflation is also given. Careful communication design could thus prevent expectations from becoming more de-anchored.

Keywords: Owner-occupied housing costs, survey experiment, inflation measurement, inflation expectations, ECB.

JEL Classification: D83, D84, E31, E50

Suggested Citation

Wauters, Joris and Zekaite, Z. and Garabedian, Garo, Owner-occupied Housing Costs, Policy Communication, and Inflation Expectations (April 10, 2024). Available at SSRN: https://ssrn.com/abstract=4810782 or http://dx.doi.org/10.2139/ssrn.4810782

Joris Wauters (Contact Author)

National Bank of Belgium ( email )

Brussels, B-1000
Belgium

Z. Zekaite

Central Bank of Ireland

P.O. Box 559
Dame Street
Dublin, 2
Ireland

Garo Garabedian

Central Bank of Ireland

P.O. Box 559
Dame Street
Dublin, 2
Ireland

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