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Price uncertainty, saving, and welfare

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  • Nocetti, Diego
  • Smith, William T.

Abstract

We analyze how commodity price uncertainty affects saving behavior and welfare in a dynamic model with multiple commodities, portfolio hedging, and a preference structure that disentangles ordinal preferences, attitudes towards risk, and attitudes towards intertemporal substitution. We show that the effect of price uncertainty on savings boils down to knowing (1) hf degree of resistance to intertemporal substitution and (2) the effect that uncertainty has on the certainty-equivalent real interest rate. We also show that, if the certainty-equivalent real interest rate is lower with uncertainty, consumers' welfare is also lower.

Suggested Citation

  • Nocetti, Diego & Smith, William T., 2011. "Price uncertainty, saving, and welfare," Journal of Economic Dynamics and Control, Elsevier, vol. 35(7), pages 1139-1149, July.
  • Handle: RePEc:eee:dyncon:v:35:y:2011:i:7:p:1139-1149
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    References listed on IDEAS

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    Cited by:

    1. Ghassan, Hassan B., 2015. "نموذج النفقة والإعتدال حسب كتابات الشيباني
      [Spending and Fairness Model Based on the Writing of Shibani]
      ," MPRA Paper 80603, University Library of Munich, Germany, revised 2016.
    2. Ghassan, Hassan B., 2015. "A Consumer Model and Social Welfare Based on the Writings of Shibani (750-805 AD, 131-189 AH)," MPRA Paper 72441, University Library of Munich, Germany, revised 05 Mar 2016.
    3. Jouini, Elyès & Napp, Clotilde & Nocetti, Diego, 2013. "On multivariate prudence," Journal of Economic Theory, Elsevier, vol. 148(3), pages 1255-1267.
    4. Ghassan, Hassan B., 2015. "Islamic Consumer Model, Fairness Behavior and Asymptotic Utility," MPRA Paper 67141, University Library of Munich, Germany.
    5. Christophe Gouel, 2014. "Food Price Volatility and Domestic Stabilization Policies in Developing Countries," NBER Chapters,in: The Economics of Food Price Volatility, pages 261-306 National Bureau of Economic Research, Inc.

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