The aim of the paper is to assess the theoretical and empirical importance of the real rate of interest on households' financial savings, as a switching device between the accumulation of real and financial assets. We examine first the correct integration of stocks of real and financial assets and flows of income and expenditure through the definition of the private sector's real wealth and of the public sector budget constraint and provide a brief summary of the evolution of sectoral saving and financial balances in Italy since 1970.
We then try to identify the functional form of households' savings in financial assets, for the late 1970s and early 1980s, using both inflation adjusted and unadjusted disposable income, and detect noticeable effects of the real rate of interest on financial savings. The final section contains some considerations on the economic policies pursued with the aim of reconciling the demand for and the supply of funds by different sectors.
