Search Results
Working Paper
Late Payment Fees and Nonpayment in Rental Markets, and Implications for Inflation Measurement: Theoretical Considerations and Evidence
Accurate rent measurement is essential for constructing a consumer price index (CPI) and for measuring household welfare. Late payment fees and nonpayment of rent are common components of rental expenditures and thus belong in CPIs. Late payment fees are often excluded; we offer a novel critique. In the US CPI, nonpayment is ostensibly included, but, we show, severely undermeasured. Moreover, the manner of its inclusion renders the CPI extremely sensitive to nonpayment variations; we show how to fix this. Nonpayment undermeasurement suggests at least a +1 ppt overestimate in 2020 CPI shelter ...
Working Paper
Determinants of Differential Rent Changes: Mean Reversion versus the Usual Suspects
We study 2001-2004 and 2004-2007 rent growth of 18,000 rental units, ending our study prior to the Great Recession. Which variables correlate with rent growth: Location? Age? Rent level? Occupancy duration? Structure type? The answers deepen understanding of the rental market, help statistical agencies make decisions about sample stratification and substitution, and expose coverage problems. We document significant rent stickiness. Initial relative rent level is the best predictor, though mainly due to mean reversion. "Location" comes in second, though often not statistically significantly: ...
Working Paper
Disentangling rent index differences: data, methods, and scope
Rent measurement determines 32 percent of the CPI. Accurate rent measurement is therefore essential for accurate inflation measurement, but the CPI rent index often differs from alternative measures of rent inflation. Using repeat-rent inflation measures created from CPI microdata, we show that this discrepancy is largely explained by differences in rent growth for new tenants relative to all tenants. New-tenant rent inflation provides information about future all-tenant rent inflation, but the use of new-tenant rents is contraindicated in a cost-of-living index such as the CPI. Nevertheless, ...
Working Paper
Post-COVID Inflation Dynamics: Higher for Longer
We implement a novel nonlinear structural model featuring an empirically-successful frequency-dependent and asymmetric Phillips curve; unemployment frequency components interact with three components of core PCE – core goods, housing, and core services ex-housing – and a variable capturing supply shocks. Forecast tests verify model’s accuracy in its unemployment-inflation tradeoffs, crucial for monetary policy. Using this model, we assess the plausibility of the December 2022 Summary of Economic Projections (SEP). By 2025Q4, the SEP projects 2.1 percent inflation; however, conditional ...
Journal Article
Is a Nonseasonally Adjusted Median CPI a Useful Signal of Trend Inflation?
Since controlling inflation is a central monetary policy goal, monetary policymakers focus intently on inflation signals. But they face a major difficulty: inflation data contain a lot of transitory shocks. The presence of the transitory ?noise? in inflation data makes it difficult to detect early warnings of sustained movements. Responding to these transitory shocks would be a bad idea, because doing so would translate into policy swings and reversals and introduce uncertainty and volatility into the economy. Instead, policymakers attempt to respond to the sustained movements in ...
Working Paper
Frequency Dependence in a Real-Time Monetary Policy Rule
We estimate a monetary policy rule for the US allowing for possible frequency dependence?i.e., allowing the central bank to respond differently to more persistent innovations than to more transitory innovations, in both the unemployment rate and the inflation rate. Our estimation method uses real-time data in these rates?as did the FOMC?and requires no a priori assumptions on the pattern of frequency dependence or on the nature of the processes generating either the data or the natural rate of unemployment. Unlike other approaches, our estimation method allows for possible feedback in the ...
Working Paper
Location, Location, Structure Type: Rent Divergence within Neighborhoods
Housing rents are a large share of household budgets and make a large contribution to overall inflation. Rent inflation rates for different types of housing units sometimes diverge, even in the same neighborhoods. We estimate during 2013 to 2016 apartment rents outpaced rents for detached housing in the United States by 0.76 percentage points annually after controlling for location effects. These rent dynamics imply a segmented housing market. They also suggest rent indexes need to be based on data structurally representative of their measurement objective. In particular, indexes based on ...
Working Paper
Tracking Trend Inflation: Nonseasonally Adjusted Variants of the Median and Trimmed-Mean CPI
We make five contributions. We demonstrate that extant trimmed-mean and median CPI construction procedures depart from Bureau of Labor Statistics index construction procedures, and that the departures don't make much of a difference. We produce nonseasonally adjusted variants of the trimmed-mean CPI and median CPI, and demonstrate that these are useful real-time estimates of trend inflation; the NSA median CPI outperforms the median CPI, but both SA and NSA variants of the median and the trimmed-mean CPI easily dominate the so-called "core" CPI. We introduce superior ex post measures of trend ...
Journal Article
New-Tenant Rent Passthrough and the Future of Rent Inflation
New-tenant rent inflation rose sharply during the COVID-19 pandemic, subsequently falling. Concomitantly, consumer price index (CPI) tenant rent, which measures rent increases for both new and continuing renters, rose more gradually and, after falling somewhat, has remained elevated. To illustrate why CPI rent inflation has remained elevated, we combine a measure of new-tenant rents and annual renter mobility rates to create a simulated CPI tenant rent inflation measure. We use this simulation to define a “rent gap” that represents the difference between actual CPI tenant rent inflation ...
Journal Article
Inflation’s Last Half Mile: Higher for Longer?
Will inflation quickly return to the FOMC’s target of 2 percent? I explore this question through the lens of the Verbrugge and Zaman (2023) model—the VZ model—a structural model whose forecasts are competitive with hard-to-beat forecasting models. The time it takes to get to the target depends on the persistence of inflation, and theory gives mixed signals about whether inflation persistence is currently high or low. The VZ model distinguishes between two sources of inflation persistence, extrinsic and intrinsic, and implies that inflation has high intrinsic persistence. If the ...