Working Paper Revision
Late Payment Fees and Nonpayment in Rental Markets, and Implications for Inflation Measurement: Theoretical Considerations and Evidence
Abstract: Accurate rent measurement is essential for constructing a consumer price index (CPI) and for measuring household welfare. Late payment fees and nonpayment of rent are common components of rental expenditures and thus belong in CPIs. Late payment fees are often excluded; we offer a novel critique. In the US CPI, nonpayment is ostensibly included, but, we show, severely undermeasured. Moreover, the manner of its inclusion renders the CPI extremely sensitive to nonpayment variations; we show how to fix this. Nonpayment undermeasurement suggests at least a +1 ppt overestimate in 2020 CPI shelter inflation. Timely nonpayment and late fee measurement is challenging; we offer a practical solution.
Keywords: shelter inflation; nonpayment; eviction; COVID-19 collapse; CPI mismeasurement;
JEL Classification: E31; R31; R32;
https://doi.org/10.26509/frbc-wp-202022r2
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Provider: Federal Reserve Bank of Cleveland
Part of Series: Working Papers
Publication Date: 2023-11-06
Number: 20-22R2
Note: Revised version of Working Paper 2020-22R which was posted April 6, 2021.
Related Works
- Working Paper Revision (2023-11-06) : You are here.
- Working Paper Original (2021-04-06) : Late Payment Fees and Nonpayment in Rental Markets, and Implications for Inflation Measurement: Theoretical Considerations and Evidence