Paper #396

Title:

Asset prices and the measurement of wealth and saving

Author:

Michael Reiter

Date:

September 1999

Abstract:

The paper defines concepts of real wealth and saving which take into account the intertemporal index number problem that results from changing interest rates. Unlike conventional measures of real wealth, which are based on the market value of assets and ignore the index number problem, the new measure correctly reflects the changes in the welfare of households over time. An empirically operational approximation to the theoretical measure is provided and applied to US data. A major empirical finding is that US real financial wealth increased strongly in the 1980s, much more than is revealed by the market value of assets.

Keywords:

Real wealth, real saving, welfare, index numbers

JEL codes:

C43, E22, E44

Area of Research:

Macroeconomics and International Economics

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