Back Out Housing Adjustments, and Core CPI = 5.3%
Adjust this!
We visited the issue of BLS "Owners Equivalent Rent" in CPI back in May (and several times since). But we never did the heavy lifting as to exactly what the magical core rate would be if we back out the misleading BLS adjustment
Kudos to Tim (themessthatgreenspanmade) for rolling up his sleeves and doing the hard work of actually calculating what the core rate would be without the absurdity of the BLS hedonic adjustments: We end up with a Core Rate of 5.3%
Put that in your Hedonic BLS Modelling pipe and smoke it . . .
UPDATE: OCTOBER 17, 2005 10:26 AM
I abuse the term Hedonics to refer to ANY adjustment to price based on a rationale of logic (or illogic), rather than the focus on actually price.
It is technically more precise to say that the Owner's equivalent rent is a decision made in the process of designing the BLS CPI model -- and less a true Hedonic adjustment.
Antony Mueller of the Ludwig von Mises Institute has an excellent explanation of how BLS abuses Hedonics here.
Source:
Home Ownership Costs and Core Inflation
http://themessthatgreenspanmade.blogspot.com/2005/10/
home-ownership-costs-and-core.html
Monday, October 17, 2005 | 09:52 AM | Permalink
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This also means that real home prices most likely declined in Q3 2005. We will not know for sure until the OFHEO price index is released.
In previous housing slow downs, inventories rose, real prices declined and then nominal prices declined.
Best Regards.
Posted by: CalculatedRisk | Oct 17, 2005 12:24:41 PM
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