measurement errors in official consumer price indices. 4 the main criticism is that official indices are not sufficiently adjusted for changes in quality and that they do not capture consumers ’ possibilities for shifting consumption away from the goods that show the fastest rise in prices. many of the studies have concluded that consumer price indices overestimate the actual rise in prices. that is one reason why inflation - targeting countries set the target higher than zero. but there are also studies that point out that consumer price indices can underestimate the rate of increase for some components. against this backdrop, i will now discuss two particular notional concepts used in estimating the consumer price index in norway to illustrate the uncertainty ; how to impute rent for owner - occupied dwellings and how to measure clothing prices. a common method for imputing rent for owner - occupied housing is to apply the rent for a dwelling of an equivalent type, which is often referred to as rental equivalence. in addition to norway, statistical agencies in denmark, the us and germany, among others, use imputed rent to calculate owner occupants ’ housing costs in the consumer price index. the consumer price index is designed to measure price developments for a stream of goods and services. it is the service the dwelling provides that the consumer price index is to capture. house prices are more like asset prices, such as share prices or bond prices. it may nevertheless be interesting to look at the relationship between house price and rents, at least in theory. let us assume that the rental market and home ownership market are in equilibrium. in this case, home rental prices will reflect the cost of owning a home. what is included in the cost of owning a dwelling? the cost of acquiring a home must obviously be included and the financing cost is determined by the interest rate. norwegian households primarily finance home purchases with floating - rate mortgages. long - term interest rates are still important because they provide information about developments in short - term interest rates over time. the long - term interest rate is therefore the most relevant rate. housing depreciation also has a bearing on user costs. moreover, the expected increase in the price of a dwelling represents a gain that must be deducted from costs. if we now add and subtract expectations about the general rise in prices in the economy, we are left with the following four variables that have a bearing on user costs : house prices, longterm real interest rates, capital depreciation and expected real rise in house prices. 5 as did, for

employment, lower unemployment and lower wage shares than earlier. but we are uncertain how long this period will last. even if we use different models and anecdotal information, we cannot escape the need for a healthy portion of qualified judgement when making forecasts and setting the interest rate. my experience from as far back as the 1970s is that in the event of major disturbances and structural changes in the economy, one essentially has to rely on general insights about the functioning of the economy. models that rely heavily on regressions easily break down. as mervyn king, the governor of the bank of england, stated explicitly to the point2 : “.. that ’ s what we have to do with every variable that we look at, work out why it ’ s growing faster or slower than it was before and not to use some rather mindless regression. … the secret of good policy is to try and think trough what are the economics of the shocks hitting the economy at present. that in a nutshell is my philosophy of how you should do policy. don ’ t rely on regressions from the past. ” having discussed the role of monetary policy and rather complex economic models, i will move on to the final theme which may seem more prosaic, notably measuring current inflation. in general, the production level of economic statistics is probably very high in norway, as shown in international comparisons by the imf among others. it would also seem that it is very cost - effective. improvements are frequently made to the methodology and the compilation of cpi statistics. in august this year, the indices for electricity, books and air travel were revised. last year, statistics norway changed the method for the treatment of rents in the housing market, and the previous year the food index was revised. a general view is that changes in statistics production should be well documented and should place particular emphasis on identifying the effects such changes might have on measured inflation. furthermore, the statistics should be comparable, but not necessarily see mervyn king, governor, bank of england on the occasion of the tenth anniversary of the central bank's independence : ( see financial times, thursday, 3 may ). identical, across countries. it is positive that others are interested in and debate statistics production. 3 with an inflation target for monetary policy, measuring inflation is of particular importance. cpi inflation is used as a reference in the wage negotiations each spring. many financial contracts are linked to cpi inflation. a number of international studies have concluded that there are considerable