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Consumption and precautionary saving: An empirical analysis under both financial and environmental risks

Authors
Journal
Economic Modelling
0264-9993
Publisher
Elsevier
Volume
30
Identifiers
DOI: 10.1016/j.econmod.2012.09.006
Keywords
  • Consumption
  • Precautionary Saving
  • Financial Risk
  • Environmental Risk
  • Prudence
  • Relative Risk Aversion
  • Uncertainty
Disciplines
  • Ecology
  • Geography

Abstract

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 influence consumption. Moreover, we suggest a solution to some shortcomings which affect the empirical analysis performed with one-argument utility functions. Finally, we provide new estimates of indexes of relative risk aversion and relative prudence, as well as relative preference of environmental quality.

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