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

Author

Listed:
  • Donatella Baiardi

    (Department of Economics and Quantitative Methods, University of Pavia)

  • Matteo Manera

    (Department of Statistics, University of Milano-Bicocca, Italy and Fondazione Eni Enrico Mattei)

  • Mario Menegatti

    (Department of Economics, University of Parma)

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.

Suggested Citation

  • Donatella Baiardi & Matteo Manera & Mario Menegatti, 2011. "Consumption and Precautionary Saving: An Empirical Analysis under Both Financial and Environmental Risks," Working Papers 2011.62, Fondazione Eni Enrico Mattei.
    • Handle: RePEc:fem:femwpa:2011.62
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    Cited by:

    1. Luca Zanin, 2017. "The effects of various motives to save money on the propensity of Italian households to allocate an unexpected inheritance towards consumption," Quality & Quantity: International Journal of Methodology, Springer, vol. 51(4), pages 1755-1775, July.
    2. Bande, Roberto & Riveiro, Dolores & Ruiz, Freddy, 2021. "Does Uncertainty Affect Saving Decisions of Colombian Households? Evidence on Precautionary Saving," MPRA Paper 106771, University Library of Munich, Germany.
    3. Baiardi, Donatella & Manera, Matteo & Menegatti, Mario, 2014. "The Effects of Environmental Risk on Consumption: an Empirical Analysis on the Mediterranean Countries," Energy: Resources and Markets 172443, Fondazione Eni Enrico Mattei (FEEM).
    4. Desu Liu & Mario Menegatti, 2019. "Optimal saving and health prevention," Journal of Economics, Springer, vol. 128(2), pages 177-191, October.
    5. Lugilde, Alba & Bande, Roberto & Riveiro, Dolores, 2017. "Precautionary Saving: a review of the theory and the evidence," MPRA Paper 77511, University Library of Munich, Germany.

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    More about this item

    Keywords

    Consumption; Precautionary Saving; Financial Risk; Environmental Risk; Prudence; Relative Risk Aversion; Uncertainty;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

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