Asset Prices and the Measurement of Wealth and Saving

The paper de nes 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 re ects 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 nding is that US real nancial wealth increased strongly in the 1980s, much more than is revealed by the market value of assets. Michael Reiter Department of Economics Universitat Pompeu Fabra Ramon Trias Fargas 25-27 E-08005 Barcelona Spain e-mail: [email protected] I am grateful to Claude Hillinger, Hans-Werner Sinn, seminar participants in Munich, Barcelona and Princeton and in particular to David Bradford for many helpful comments and discussions.