Inflation Dynamics over the Last Quarter Century Tsutomu Watanabe

We take advantage of a panel data of housing rents for the period of 1986 to 2006 which we have compiled from 720,000 listings in the widely-circulated housing advertisement magazine. First, we find that the probability of rent adjustment does not depend on the deviation of actual rent from its target level. We also find a flat hazard function at least for durations less than 400 weeks. These results suggest that the rent adjustment obeys a Poisson process. Second, the Calvo pa-rameter is estimated to be 0.97, indicating that the probability of the rent adjustment occurs is 3 percent per quarter, much lower than the estimate for other goods and services. Third, we find that estimates for the inflation rate during the bubble and the post-bubble periods are sensitive to a change in the treatment of the imputed rent for owner occupied housing. 1 Why were prices so stable