Fed: smaller optimal weight should be placed on rental price inflation
A paper published last month by the San Francisco Federal Reserve looks at the impact of the rental housing price element in consumer price index (CPI) inflation and finds the optimal weight of rental inflation in CPI inflation is much smaller than that implied by the housing expenditure share.
The research posits that this is the case because large fluctuations in the price of housing stocks lead to large adjustments in reset rental prices.
Under calibrated parameters, the optimal weight on
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