Rent indices for housing in West Germany 1985 to 1998

In several studies, hedonic methods have been used successfully for the ex post assessment of the accuracy of inflation measurement. Most of these studies relate to high-tech products, with respect to which traditional methods of compiling price indices often fail. We apply hedonic methods to rental housing services, which display less quality progress. However, as German households spend about 10 % of total expenditure on housing rents, even a small bias in this field might induce a substantial distortion in overall inflation measurement. Based on data from the German Socio-Economic Panel, we perform an hedonic analysis of housing rents and compile different price indices. Overall, we conclude that there is some evidence of an understatement of rent inflation in the official rent index for West Germany at the beginning of the 1990s.