The Unassuming Economist

The IMF’s latest report on Ukraine:

“A technical assistance (TA) mission was conducted during June 18–22, 2018 to support the State Statistics Service of Ukraine (SSSU) in improving the residential property price indexes (RPPI) for Ukraine. This was the second of a series of SECO2 RPPI-funded TA missions to take place until mid-2019 that will assist in building staff capacity for further development of the RPPI. RPPIs have been identified as critical ingredients for financial stability policy analysis. The indexes are used by policy makers as an input into design of macroprudential policies, that is, those policies aim to reduce systemic risks arising from “excessive” financial procyclicality (such as asset bubbles). RPPIs are also used by policy makers to inform monetary policy and inflation targeting.

In line with the recommendations from the previous mission, and ahead of schedule, an experimental overall national RPPI has been compiled. The authorities have used administrative data on the size of properties registered, combined with a survey covering the construction of new homes, to estimate the relative sizes of primary and secondary markets. The estimated weights remain susceptible to outliers, in particular, errors in the size registered. The SSSU should continue to work on addressing these errors.

It was agreed that a number of other improvements to the existing methodology can be implemented. Within the current methodology, the stratification design will be modified, with construction material to be dropped, significantly reducing the number of strata with zero or few returns each quarter. A standardized procedure for imputation where there are no returns in a stratum will be introduced. This is in addition to the existing procedures, where survey returns are reviewed to identify outliers that could affect results.

To further improve the RPPIs in the medium term, the underlying methodology will switch from stratification to hedonic methods. As a result of discussions during the mission, it was agreed that, given the constraints of the existing survey, hedonic methods represent the best option for reliable RPPIs, particularly, if data sources are improved in the future. The authorities remain enthusiastic about switching from the current stratification method to a hedonic regression method, and, therefore, building staff capacity in this area is a priority. Intensive training on the hedonic method and its relation to the existing methods was provided to the authorities during the mission. Additionally, three staff members will participate in the RPPI training seminar to be held at the Joint Vienna Institute (JVI) during August 2018. Work on developing an experimental hedonic model will be undertaken in 2019.

A switch to comprehensive administrative data will require cooperation of stakeholders elsewhere in the policy system. Existing survey data underpinning the RPPIs are limited, as responses are not legally mandatory. In line with best practice elsewhere, the use of survey data should be replaced by comprehensive administrative data. However, while the authorities can now access information in the registry of property transactions maintained by the State Enterprise Information Center (SEIC), entry of transaction price is not required in the registry, and often the recorded price is the assessed value, rather than the market price. If administrative data are to be used, this will require cooperation of other stakeholders, including the Ministry of Justice (the SEIC’s parent department), so that information recorded in the registry is suitable for use in the compilation of RPPIs.”