Disentangling risk aversion and intertemporal substitution through a reference level

In the canonical CCAPM, the coefficient of relative risk aversion is constrained to be the inverse of the elasticity of intertemporal substitution. For theoretical and empirical reasons the two concepts should be disentangled. We suggest that disentangling may be obtained by replacing the future consumption stream not by a certainty equivalent of future utility, like in the recursive utility model of Epstein and Zin [1989. Econometrica 57, 937-969], but by an exogenous reference level of consumption, which, in a recursive way, assesses the expected future consumption.