Consumption and precautionary saving: an empirical analysis under both financial and environmental risks

Authors: Baiardi D., Manera M., Menegatti M.

Journal: Economic Modelling

Publisher: Elsevier

Year: 2013

Volume: 30

Pages: 157-166

Keywords: Consumption, Precautionary saving, Financial risk, Environmental risk, Prudence, Relative risk aversion, Uncertainty

JEL: D81, E21, Q50

DOI: http://dx.doi.org/10.1016/econmod.2012.09.006

 

Abstract

This paper studies the empirical relationship between consumption and saving under two different sources of uncertainty: financial risk and environmental risk. The analysis is carried out using time series data for six advanced economies in the period 1965-2007. The results support the theoretical conclusions that both financial risk alone and the interaction between financial and environmental risks influence consumption.Moreover,we suggest a solution to some shortcomingswhich affect the empirical analysis performed with one-argument utility functions. Finally, we provide new estimates of indexes of relative risk aversion and relative prudence, as well as relative preference of environmental quality.