Hugh Montag

Academic Publications

"Disentangling Rent Index Differences: Data, Methods and Scope" (with Brian Adams, Lara Loewenstein, and Randal Verbrugge)

American Economic Review: Insights, June 2024, Vol. 6, No. 2, pp. 230-245

Rent measurement determines 32 percent of the CPI. Accurate rent measurement is therefore essential for accurate inflation measurement, but the CPI rent index often differs from alternative rent inflation measures. Using repeat-rent inflation measures created from CPI microdata, we show that this discrepancy is largely explained by differences in rent growth for new tenants relative to all tenants. New-tenant rent inflation provides information about future all-tenant rent inflation, but the use of new-tenant rents is contraindicated in a cost-of-living index such as the CPI. Nevertheless, policy-makers should integrate new-tenant inflation into inflation forecasts and monetary policy decisions. 

"On the Welfare Costs of Perceptions Biases"

Journal of Money, Credit and Banking, Forthcoming

Are households significantly harmed by inaccurate beliefs about inflation? This paper analyzes two established inflation perceptions biases and evaluates their welfare effects. The first bias is the frequency bias, where households overweight goods that they purchase frequently but are a small share of their consumption basket. In my French sample, I find that households fixate on bread prices. The second bias is that households consistently overestimate the current inflation rate, which I call the level bias in this paper. I estimate the magnitude of these biases using a confidential French household survey. To evaluate the welfare losses of the two biases, I incorporate biased inflation perceptions into a partial-equilibrium model where households save in a single nominal bond subject to inflation risk. The level bias significantly reduces welfare and asset accumulation, while the frequency bias has negligible effects. The welfare loss shrinks if I remove the perceptions bias while keeping the expectations bias, which suggest that inaccurate perceptions can harm households beyond the effect on forecasts. 

Working Papers

"Post-Pandemic Drivers of Price-Setting" (with Daniel Villar Vallenas) (also circulated as "Price-Setting During the Covid Era")

Using the micro data underlying the U.S. CPI, we document several findings about firm price-setting behavior during the Covid-19 pandemic, a period with the highest levels of inflation seen in over thirty years. We present three sets of preliminary results: 1) firms primarily adjusted to the pandemic through the intensive margin by altering the size of price changes. In contrast, the frequency of price change changed comparatively little during this period. The dispersion of price changes rose in early 2020, before falling and remaining low throughout 2021. 2) The between-sector variance of price changes rises at various points during the pandemic, which indicates the presence of sectoral shocks. We do not find a relationship between sectoral pre-pandemic flexibility and how quickly firms adjusted to economic shocks during the pandemic. 3) Changes in inflation are substantially driven by changes in the share of price increases relative to the share of price declines. The share of price increases rose in 2021 even as the absolute value of all price changes remained flat. Some of our findings are consistent with time-dependent pricing models, while other patterns are more consistent with state-dependent pricing models in a low inflation environment.

"Sticky Continuing-Tenant Rents” (with Joshua Gallin, Lara Loewenstein and Randall Verbrugge)

Declining mobility means that continuing-tenant rents are increasingly important for CPI shelter infation. However, relatively little is known about them. Using the microdata that underlies CPI shelter, we document facts about continuing-tenant rents. They are sticky, with little cyclical variation in stickiness. Unit-level rent gaps—that is, the log diference between the unit’s actual rent and its hypothetical new-tenant rent—grow over a tenancy. Higher new-tenant rents (and rent gaps) are correlated with the frequency and size of continuing-tenant rent changes and the probability of a tenant moving out. The current aggregate rent gap is in the 2.5 to 5 percent range. 

BLS Publications

"The impact of changing consumer expenditure patterns at the onset of the COVID-19 pandemic on measures of consumer inflation" (link) with Brett Matsumoto and Christopher Miller. April, 2022.

Education

Ph.D., Economics, Northwestern University 2020

B.A., Economics and Mathematics, Swarthmore College, 2011