Consumption and Precautionary Saving: An Empirical Analysis under Both Financial and Environmental Risks
Donatella Baiardi, Matteo Manera, Mario Menegatti
D81, E21, Q50
Consumption, Precautionary Saving, Financial Risk, Environmental Risk, Prudence, Relative Risk Aversion, Uncertainty
Climate Change and Sustainable Development
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.
Suggested citation: Donatella Baiardi, Matteo Manera, Mario Menegatti, Consumption and precautionary saving: An empirical analysis under both financial and environmental risks, Economic Modelling, Volume 30, January 2013, Pages 157-166, ISSN 0264-9993, http://dx.doi.org/10.1016/j.econmod.2012.09.006