Impact of the degree of relative risk aversion, the interest rate and the exchange rate depreciation on economic welfare in a small open economy

Y. V. Soriano-Morales (), Benjamín Vallejo-Jiménez () and Francisco Venegas-Martínez
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Y. V. Soriano-Morales: Escuela Superior de Economía, Instituto Politécnico Nacional
Benjamín Vallejo-Jiménez: Escuela Superior de Economía, Instituto Politécnico Nacional

Panorama Económico, 2017, vol. 13, issue 25, 7-24

Abstract: This paper is aimed at assessing the impact of the degree of relative risk aversion on economic welfare for different levels of the interest rate and the exchange rate depreciation in a small open beconomy. To do this, a representative consumer-producer makes decisions on consumption, money balances, and leisure. In order to find a closed-form solution of the household’s economic welfare, it is assumed that individual’s preferences belong to the family of Constant Relative Risk Aversion (CRRA) utility functions. Several comparative statics graphical experiments about the effects of the degree of relative risk aversion on economic welfare for different levels of nominal variables are carried out. Finally, we find that, under the stated assumptions, household’s economic welfare seen as a function of the degree of relative risk aversion is responsive to different values of nominal variables.

Keywords: consumer-producer economics, economic welfare, degree of relative risk aversion, small open economy, interest rate, foreign exchange. Camerún; Costa de Marfil; Nigeria. (search for similar items in EconPapers)
JEL-codes: D11 D13 D60 E40 F31 F41 (search for similar items in EconPapers)
Date: 2017
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Related works:
Working Paper: Impact of the Degree of Relative Risk Aversion, the Interest Rate and the Exchange Rate Depreciation on Economic Welfare in a Small Open Economy (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:ipn:panora:v:13:y:2017:i:25:p:7-24

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