Mind the wealth gap: a new allocation method to match micro and macro statistics for household wealth

The financial and economic crisis recently experienced by many European countries has increased demand for timely, coherent and consistent distributional information for the household sector. In the Euro area, most of the NCBs collect such information through wealth surveys (Eurosystem Household Finance and Consumption Survey, HFCS), which are often used to provide distributional financial accounts and inform monetary policy. These surveys, however, can often suffer from a number of biases, usually caused by differential non-response and under-reporting behaviour, leading to a mismatch with macroeconomic aggregates. In this paper, we develop a novel allocation method which combines distributional information from a power law (Pareto) model with re-weighting and imputation procedures so to address these issues simultaneously, filling the gap with macro statistics and retaining the micro data structure of the survey. Finally, we produce updated distributional indicators for four Euro-Area countries, documenting significant improvements in the measurement of wealth inequality.