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Asset prices and the measurement of wealth and saving

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  • Michael Reiter

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.

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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 396.

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Date of creation: Sep 1999
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Handle: RePEc:upf:upfgen:396

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Web page: http://www.econ.upf.edu/

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Keywords: Real wealth; real saving; welfare; index numbers;

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References

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  1. Eisner, Robert, 1988. "Extended Accounts for National Income and Product," Journal of Economic Literature, American Economic Association, vol. 26(4), pages 1611-84, December.
  2. David F. Bradford, 1991. "Market Value versus Financial Accounting Measures of National Saving," NBER Chapters, in: National Saving and Economic Performance, pages 15-48 National Bureau of Economic Research, Inc.
  3. Robert J. Barro, 1988. "The Ricardian Approach to Budget Deficits," NBER Working Papers 2685, National Bureau of Economic Research, Inc.
  4. Gary D. Hansen & Edward C. Prescott, 1992. "Recursive methods for computing equilibria of business cycle models," Discussion Paper / Institute for Empirical Macroeconomics 36, Federal Reserve Bank of Minneapolis.
  5. Hartwick, John M., 1990. "Natural resources, national accounting and economic depreciation," Journal of Public Economics, Elsevier, vol. 43(3), pages 291-304, December.
  6. Barsky, Robert B, 1989. "Why Don't the Prices of Stocks and Bonds Move Together?," American Economic Review, American Economic Association, vol. 79(5), pages 1132-45, December.
  7. David F. Bradford, 1990. "What is National Saving?: Alternative Measures in Historical and International Context," NBER Working Papers 3341, National Bureau of Economic Research, Inc.
  8. Shiller, Robert J, 1981. "Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?," American Economic Review, American Economic Association, vol. 71(3), pages 421-36, June.
  9. W. Erwin Diewert, 1995. "Axiomatic and Economic Approaches to Elementary Price Indexes," NBER Working Papers 5104, National Bureau of Economic Research, Inc.
  10. David F. Bradford, 1993. "Market Value Vs. Financial Accounting Measures of National Saving," NBER Working Papers 2906, National Bureau of Economic Research, Inc.
  11. Eisner, Robert, 1989. "The Total Incomes System of Accounts," University of Chicago Press Economics Books, University of Chicago Press, edition 1, number 9780226196381, February.
  12. Samuelson, Paul A & Swamy, S, 1974. "Invariant Economic Index Numbers and Canonical Duality: Survey and Synthesis," American Economic Review, American Economic Association, vol. 64(4), pages 566-93, September.
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Cited by:
  1. Omar Licandro & Javier Ruiz-Castillo & Jorge Duran, 2002. "The Measurement of Growth under Embodied Technical Change," Recherches économiques de Louvain, De Boeck Université, vol. 68(1), pages 7-19.
  2. Luigi, Cannnari & Giovanni, D'Alessio & Romina, Gambacorta, 2008. "Capital Gains and Wealth Distribution in Italy," MPRA Paper 15108, University Library of Munich, Germany.
    • Luigi Cannari & Giovanni D'Alessio & Romina Gambacorta, 2007. "Capital gains and wealth distribution in Italy," IFC Bulletins chapters, in: Bank for International Settlements (ed.), Proceedings of the IFC Conference on "Measuring the financial position of the household sector", Basel, 30-31 August 2006 - Volume 2, volume 26, pages 129-156 Bank for International Settlements.
  3. Luigi, Cannari & Giovanni, D'Alessio & Grazia, Marchese, 2008. "Italian Household Wealth: Background, Main Results, Outlook," MPRA Paper 15106, University Library of Munich, Germany.

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