eprintid: 773
rev_number: 13
eprint_status: archive
userid: 34
dir: disk0/00/00/07/73
datestamp: 2011-08-09 07:45:00
lastmod: 2011-08-12 15:18:50
status_changed: 2011-08-09 07:45:00
type: article
metadata_visibility: show
item_issues_count: 0
creators_name: Saltari, Enrico
creators_name: Ticchi, Davide
creators_id: 
creators_id: davide.ticchi@imtlucca.it
title: Risk aversion, intertemporal substitution, and the aggregate investment-uncertainty relationship
ispublished: pub
subjects: HB
subjects: HG
divisions: EIC
full_text_status: public
keywords: Aggregate investment; Aggregate savings; Aggregate uncertainty; Risk aversion; Intertemporal substitution
abstract: 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.
date: 2007-04
date_type: published
publication: Journal of monetary economics
volume: 54
number: 3
publisher: Elsevier
pagerange: 622 - 648
id_number: 10.1016/j.jmoneco.2006.01.002
refereed: TRUE
issn: 0304-3932
official_url: http://www.sciencedirect.com/science/article/pii/S0304393206001838
citation:   Saltari, Enrico and Ticchi, Davide  Risk aversion, intertemporal substitution, and the aggregate investment-uncertainty relationship.  Journal of monetary economics, 54 (3).  622 - 648.  ISSN 0304-3932      (2007)  
document_url: http://eprints.imtlucca.it/773/1/Ticchi_2007b.pdf