FEEM working papers "Note di lavoro" series
2011 .062

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

Authors: Donatella Baiardi, Matteo Manera, Mario Menegatti
Series: Climate Change and Sustainable Development
Editor: Carlo Carraro
Type: Journal
Keywords: Consumption, Precautionary Saving, Financial Risk, Environmental Risk, Prudence, Relative Risk Aversion, Uncertainty
JEL n.: D81, E21, Q50
JEL: Economic Modelling 2013 Vol.30
Pages: pp.157-166
Date: 01/2013


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

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