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

  • 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)

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.

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2011.62.

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Date of creation: Aug 2011
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Handle: RePEc:fem:femwpa:2011.62
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