1. 1 UNECE Meeting of the Group of Experts on Consumer Price Indices, 26-28 May, 2014 Federal Department of Home Affairs FDHA Federal Statistical Office FSO Limitations and impact of hedonic adjustment for the Swiss rent index

2. 2 UNECE Meeting of the Group of Experts on Consumer Price Indices, 26-28 May, 2014 Federal Department of Home Affairs FDHA Federal Statistical Office FSO Contents 1. Introduction 2. Hedonic adjustment 3. Impact of adjustment 4. Breakdown of adjustment 5. Conclusions

3. 3 UNECE Meeting of the Group of Experts on Consumer Price Indices, 26-28 May, 2014 Federal Department of Home Affairs FDHA Federal Statistical Office FSO Rents for housing : a major part of the CPI basket a higher increase as the overall CPI a special market a major issue : quality adjustment Introduction

4. 4 UNECE Meeting of the Group of Experts on Consumer Price Indices, 26-28 May, 2014 Federal Department of Home Affairs FDHA Federal Statistical Office FSO Annual change in rents, CPI and mortgage rateAnnual change in rents, CPI and mortgage esAnnual change in rents, CPI and mortgage rates CPI Rents Mortgage rate C PI, re nt s (c ha ng e in % ) Graph 2: Annual change in rents, CPI and mortgage rates

5. 5 UNECE Meeting of the Group of Experts on Consumer Price Indices, 26-28 May, 2014 Federal Department of Home Affairs FDHA Federal Statistical Office FSO Statified ex post according to number of rooms and dwelling age. -1993-2005 : further QA in accordance with renovations Quality adjustment methods for rents

6. 6 UNECE Meeting of the Group of Experts on Consumer Price Indices, 26-28 May, 2014 Federal Department of Home Affairs FDHA Federal Statistical Office FSO

7. 7 UNECE Meeting of the Group of Experts on Consumer Price Indices, 26-28 May, 2014 Federal Department of Home Affairs FDHA Federal Statistical Office FSO The rent matrix 2 rooms 2005 950.- 2 rooms 2005 950.- 4 rooms 1990 1’450.- 4 rooms 1990 1’450.- 6 rooms 2011 2’800.- 6 rooms 2011 2’800.- 3 rooms 1970 850.- 3 rooms 1970 850.- Age/nb rooms1 room2 rooms3 rooms4 rooms5 rooms6 rooms 0-5 years 6-10 years 11-20 years More than 20 years 950.- 850.- 1‘450.- 2‘800.-

8. 8 UNECE Meeting of the Group of Experts on Consumer Price Indices, 26-28 May, 2014 Federal Department of Home Affairs FDHA Federal Statistical Office FSO The rent matrix with adjustment according to renovations Partially renovated, calculated age 3 rooms, 1970, 850.- Age/nb rooms1 room2 rooms3 rooms4 rooms5 rooms6 rooms 0-5 years 6-10 years 11-20 years More than 20 years 850.- 1‘200.- 3 rooms, 1995, 1’200.-

9. 9 UNECE Meeting of the Group of Experts on Consumer Price Indices, 26-28 May, 2014 Federal Department of Home Affairs FDHA Federal Statistical Office FSO Stratified ex post according to number of rooms and dwelling age. -2006-2010: ------- -2011-now : hedonic model Quality adjustment methods for rents

10. 10 UNECE Meeting of the Group of Experts on Consumer Price Indices, 26-28 May, 2014 Federal Department of Home Affairs FDHA Federal Statistical Office FSO Hedonic adjustment (2011-now) : main features - hedonic repricing / hedonic QA - rent structure survey 2003 - multiplicative model - issue of location Hedonic adjustment

11. 11 UNECE Meeting of the Group of Experts on Consumer Price Indices, 26-28 May, 2014 Federal Department of Home Affairs FDHA Federal Statistical Office FSO Hedonic model Hedonic repricing : principles With Jevons-index: Adjustment factor

12. 12 UNECE Meeting of the Group of Experts on Consumer Price Indices, 26-28 May, 2014 Federal Department of Home Affairs FDHA Federal Statistical Office FSO Hedonic model Why hedonic repricing ? Hedonic regression not constrained to current/base period: 2003 Database for regression <> Database for index calculation : MSE (90‘000 dwellings) + external suppliers (location) Close to standard QA approaches

13. 13 UNECE Meeting of the Group of Experts on Consumer Price Indices, 26-28 May, 2014 Federal Department of Home Affairs FDHA Federal Statistical Office FSO Hedonic model Multiplicative model (1) 1) Estimated model : => Multiplicative relation :

14. 14 UNECE Meeting of the Group of Experts on Consumer Price Indices, 26-28 May, 2014 Federal Department of Home Affairs FDHA Federal Statistical Office FSO Hedonic model Multiplicative model (2) 2) Adjustment factor:

15. 15 UNECE Meeting of the Group of Experts on Consumer Price Indices, 26-28 May, 2014 Federal Department of Home Affairs FDHA Federal Statistical Office FSO Hedonic model Variables Type (3)Variables (58 / 47D) Structural (12 / 8D)Age, surface/room, storey, garage, penthouse, duplex Micro-location (13 / 10D)Distance from the lake, lake view, mountain view, gradient, exposure, noise Macro-location (33 / 30D)Potential accessibility, fiscal capacity, tax rate, canton, major city Hectare values

16. 16 UNECE Meeting of the Group of Experts on Consumer Price Indices, 26-28 May, 2014 Federal Department of Home Affairs FDHA Federal Statistical Office FSO Impact Index ACTotal index Unadj. change+ 0.81%+ 0.18% Adj. change+ 1.03%+ 0.21% Deviation+ 0.21%+ 0.03% Impact on the index

17. 17 UNECE Meeting of the Group of Experts on Consumer Price Indices, 26-28 May, 2014 Federal Department of Home Affairs FDHA Federal Statistical Office FSO Impact

18. 18 UNECE Meeting of the Group of Experts on Consumer Price Indices, 26-28 May, 2014 Federal Department of Home Affairs FDHA Federal Statistical Office FSO Impact

19. 19 UNECE Meeting of the Group of Experts on Consumer Price Indices, 26-28 May, 2014 Federal Department of Home Affairs FDHA Federal Statistical Office FSO

20. 20 UNECE Meeting of the Group of Experts on Consumer Price Indices, 26-28 May, 2014 Federal Department of Home Affairs FDHA Federal Statistical Office FSO Breakdown

21. 21 UNECE Meeting of the Group of Experts on Consumer Price Indices, 26-28 May, 2014 Federal Department of Home Affairs FDHA Federal Statistical Office FSO Breakdown

22. 22 UNECE Meeting of the Group of Experts on Consumer Price Indices, 26-28 May, 2014 Federal Department of Home Affairs FDHA Federal Statistical Office FSO Breakdown

23. 23 UNECE Meeting of the Group of Experts on Consumer Price Indices, 26-28 May, 2014 Federal Department of Home Affairs FDHA Federal Statistical Office FSO

24. 24 UNECE Meeting of the Group of Experts on Consumer Price Indices, 26-28 May, 2014 Federal Department of Home Affairs FDHA Federal Statistical Office FSO Breakdown

25. 25 UNECE Meeting of the Group of Experts on Consumer Price Indices, 26-28 May, 2014 Federal Department of Home Affairs FDHA Federal Statistical Office FSO

26. 26 UNECE Meeting of the Group of Experts on Consumer Price Indices, 26-28 May, 2014 Federal Department of Home Affairs FDHA Federal Statistical Office FSO Breakdown

27. 27 UNECE Meeting of the Group of Experts on Consumer Price Indices, 26-28 May, 2014 Federal Department of Home Affairs FDHA Federal Statistical Office FSO

28. 28 UNECE Meeting of the Group of Experts on Consumer Price Indices, 26-28 May, 2014 Federal Department of Home Affairs FDHA Federal Statistical Office FSO

29. 29 UNECE Meeting of the Group of Experts on Consumer Price Indices, 26-28 May, 2014 Federal Department of Home Affairs FDHA Federal Statistical Office FSO Impact depends on the entire construction of the index Limited impact on the short term No impact in the long run Conclusions