Housing Rents and Inflation Rates

This paper demonstrates that inflation rates are significantly modified when they are based on an alternative quality-adjusted measure of housing rents constructed from a monthly statistic of landlord net rental income. During the Great Recession, the official rate was overestimated by 1.7 to 4.1% annually but underestimated by 0.3 to 0.8% annually afterwards. These impacts persist for a long term because the modified indexes are integrated of order one whereas the official indexes are trend stationary