Owner-Occupied Housing, Inflation, and Monetary Policy

Abstract

Owner-occupied housing (OOH) is currently excluded from the harmonized index of consumer prices (HICP) in Europe. Using microlevel data for Sydney and aggregated data for the United States, France, and Germany, we compare the impact of alternative treatments of OOH on measured inflation. We recommend including OOH in the HICP using a simplified version of the user-cost method. This would improve the harmonization of the HICP, help close the credibility gap between measured inflation and public perceptions of it, and allow the ECB to lean against a housing boom without departing from its inflation target.