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What Weight Should be Given to Asset Prices in the Measurement of Inflation?

Charles Goodhart
The Economic Journal
Vol. 111, No. 472, Features (Jun., 2001), pp. F335-F356
Published by: Wiley on behalf of the Royal Economic Society
Stable URL: http://www.jstor.org/stable/2667880
Page Count: 22
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What Weight Should be Given to Asset Prices in the Measurement of Inflation?
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Abstract

Besides the theoretical (Alchian/Klein, 1973) case for including asset prices in measures of inflation, there is also a practical case, that some asset prices, notably housing, are closely associated with the main trends in inflation, and via `bubbles and busts' with output disturbances. Attempts to use the pure Alchian/Klein methodology in practice give excessive weight to unstable asset prices, but there are more appropriate weighting schemes, derived either from econometrically measured relationships or from final expenditures. Either way, the statistical treatment of housing is crucial, and is being discussed in Eurostat.

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