Consumption and Precautionary Saving: An Empirical Analysis under Both Financial and Environmental Risks

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 affect consumption. Moreover, we suggest a solution to some shortcomings which concern the empirical analysis performed with one-argument utility functions. Finally, we provide new estimates of indexes of relative risk aversion and relative prudence, and relative preference of environmental quality.

Cite this paper

@inproceedings{Mattei2011ConsumptionAP, title={Consumption and Precautionary Saving: An Empirical Analysis under Both Financial and Environmental Risks}, author={Enrico Mattei and Carlo Carraro and Donatella Baiardi and Mario Menegatti and Matteo Manera}, year={2011} }