CPI measurement issues with a special focus on owneroccupied housing

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CPI measurement issues with a special focus on
owner-occupied housing

• Alexandra Heath
• Bank for International Settlements

Problems in measuring inflation National Bank of
the Republic of Macedonia 22 May 2007
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Outline

• Why has there been more interest in CPI
  measurement issues?

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Outline

• Why has there been more interest in CPI
  measurement issues?
• Biases in CPI measurement
• Substituion bias
• New product bias
• Outlet bias
• Quality bias

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Outline

• Why has there been more interest in CPI
  measurement issues?
• Biases in CPI measurement
• Individual price measurement
• Owner-occupied housing
• (Services)

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Outline

• Why has there been more interest in CPI
  measurement issues?
• Biases in CPI measurement
• Individual price measurement
• CPI measurement for policy

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Why is there more interest in CPI measurement?

• Inflation is lower

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Why is there more interest in CPI measurement?

• Inflation is lower
• There has been a trend towards inflation
  targeting

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Why is there more interest in CPI measurement?

• Inflation is lower
• There has been a trend towards inflation
  targeting
• The pace of structural change and product
  innovation has risen

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Why is there more interest in CPI measurement?

• Inflation is lower
• There has been a trend towards inflation
  targeting
• The pace of structural change and product
  innovation has risen
• There are quantitative estimates
• Boskin Report (1996)
• Irving Fisher Committee workshopCPI measures
  central bank views and concerns

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Biases in CPI measurement

• Substitution bias

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Biases in CPI measurement

• Substitution bias
• New product bias

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Biases in CPI measurement

• Substitution bias
• New product bias
• Outlet bias

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Biases in CPI measurement

• Substitution bias
• New product bias
• Outlet bias
• Quality bias
• Expert judegement
• Implicit methods
• Option cost approach
• Hedonic pricing methods

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Owner-occupied housing

• Rental equivalence method

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Owner-occupied housing

• Rental equivalence method
• User cost approach

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Owner-occupied housing

• Rental equivalence method
• User cost approach
• Payment approach

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Owner-occupied housing

• Rental equivalence method
• User cost approach
• Payment approach
• Net acquisitions approach

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CPI measurement for policy

• Understanding the way the CPI is compiled is key

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CPI measurement for policy

• Understanding the way the CPI is compiled is key
• Measures of underlying inflation can be helpful
  additions for analysis and communication

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CPI measurement for policy

• Understanding the way the CPI is compiled is key
• Measures of underlying inflation can be helpful
  additions for analysis and communication
• No such thing as an optimal measure of underlying
  inflation, but we understand what properties a
  measure of underlying inflation should have to be
  good

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