SNB publishes model bridging asking and all-tenant rents for inflation monitoring
The Swiss National Bank (SNB) has published a working paper proposing a probabilistic model to bridge asking and all-tenant rents. This approach offers timely, disaggregated estimates for inflation monitoring, highly correlated with the official Swiss CPI.
Bridging the rent measurement gap
Rents constitute the largest component of the Consumer Price Index (CPI) in many economies, making accurate and timely measurement of rental price developments crucial for inflation monitoring and policy decisions.
The Swiss National Bank (SNB) has developed a probabilistic model designed to bridge the substantial gap between market (asking) rent indices and the actual rents paid by the overall tenant population, which are typically measured in the CPI.
The model first constructs timely, granular, and high-frequency indices of asking rents using comprehensive rental-unit listings for Switzerland.
Subsequently, it estimates all-tenant rents based on historical asking rents, employing a sophisticated probabilistic framework that accounts for the duration of tenants' stays.
This innovative approach addresses a key challenge in real-time inflation assessment.
Integrating in-tenancy adjustments
The SNB's probabilistic model uniquely integrates rent changes occurring during ongoing tenancies.
For Switzerland, this accounts for adjustments permitted under tenancy law, often linked to the mortgage reference rate and inflation.
This inclusion provides a comprehensive view of rental price evolution, moving beyond just new listings.
The model generates weekly, real-time, and highly disaggregated estimates of all-tenant rents.
These estimates show a strong correlation with the official quarterly survey-based rental index in the Swiss CPI, validating the model's accuracy and practical utility for central bank analysis.
The framework is designed to be adaptable for use in other countries facing similar data challenges.
Filling a crucial data void
This working paper offers a significant methodological advancement for central banks seeking accurate real-time inflation data.
The model's capacity to bridge asking and all-tenant rents provides a more immediate understanding of underlying price pressures.
Its adaptability to other countries makes it a valuable framework for improved shelter inflation monitoring globally.