TY  - JOUR
AV  - public
TI  - Risk aversion, intertemporal substitution, and the aggregate investment-uncertainty relationship
SP  - 622 
VL  - 54
UR  - http://www.sciencedirect.com/science/article/pii/S0304393206001838
A1  - Saltari, Enrico
A1  - Ticchi, Davide
Y1  - 2007/04//
KW  - Aggregate investment; Aggregate savings; Aggregate uncertainty; Risk aversion; Intertemporal substitution
SN  - 0304-3932
N2  - We analyze the role of risk aversion and intertemporal substitution in a simple dynamic general equilibrium model of investment and savings. Our main finding is that risk aversion cannot by itself explain a negative relationship between aggregate investment and aggregate uncertainty, as the effect of increased uncertainty on investment also depends on the intertemporal elasticity of substitution. In particular, the relationship between aggregate investment and aggregate uncertainty is positive even if agents are very risk averse, as long as the elasticity of intertemporal substitution is low. A negative investment-uncertainty relationship requires that the relative risk aversion and the elasticity of intertemporal substitution are both relatively high or both relatively low. We also show that the implications of our model are consistent with the available empirical evidence.
ID  - eprints773
EP  -  648
PB  - Elsevier
JF  - Journal of monetary economics
IS  - 3
ER  -