A key element in the build-up to the global recession and subsequently was the movement in house price indexes (HPIs). These indexes are particularly prone to methodological and coverage differences which can undermine both within-country and cross-country economic analysis. The paper outlines key measurement issues and reports on empirical work using an international panel data set that (i) considers whether differences in HPI measurement matter and, if so, in what way, and (ii) revisits the measurement of global house price inflation and the modeling of the determinants of house price inflation using HPIs corrected for differences in measurement practice.

The October 2009 Report to the G-20 Finance Ministers and Central Bank Governors on the Financial Crisis and Information Gaps2 described data on dwellings and their associated price changes as critical ingredients for financial stability policy analysis. Of the 46 systemic banking crises for which data are available, more than two-thirds were preceded by house price boom-bust patterns (Claessens et al., 2010).3An understanding of deviations from equilibrium prices in housing markets requires reliable and, for international comparisons, consistently-measured, house price indexes (HPIs).4 Yet HPIs are particularly prone to methodological differences, which can undermine both within-country and cross-country analysis. It is a difficult but important area. There are empirical questions as to first, whether measurement differences matter and, if so, how and to what extent, and second, how such differences impact on analytical work including the measurement of global house price indexes and the modeling of HPI changes. A brief outline of measurement problems and practices is given in section II with more detail in Annex 1. Section II also notes a number of initiatives to harmonize HPI methodology. The empirical analysis in section III is based on a panel of five years of quarterly data for over 150 HPIs from nearly 25 countries; all the series differ (at least within countries) with regard to their methodological features. A fixed effects (for country) model with HPI changes regressed on measurement characteristics identify the extent to which measurement differences matter and the salient measurement features.