(FUCAPE Business School )
This paper investigates the precautionary motive using aggregate time series data for the US economy. The consumption model is based on the recursive utility function introduced by Epstein and Zin (1989), and the consumer Euler equation leads consumption growth rate to depend on asset returns and a time-varying variance, which captures the precautionary motive. This variance is estimated by means of multivariate GARCH models for consumption growth rate and asset returns. We found evidence that consumers react to risk; however, the contribution of precautionary motive to consumption growth seems to be very limited. Furthermore, when significant, the elasticity of intertemporal substitution estimates ranges from 0.43 to 1.5, while the relative risk aversion coefficient varies from 0.6 to 2.2. In all specifications we rejected that one parameter is the inverse of the other. Hence, our results rejected the CRRA utility function.
Data: 15/ 08 / 2013 (quinta-feira)
Local: 205 – 2º andar