Impact of the Degree of Relative Risk Aversion, the Interest Rate and the Exchange Rate Depreciation on Economic Welfare in a Small Open Economy

Yazmín Viridiana Soriano-Morales, Benjamín Vallejo-Jiménez and Francisco Venegas-Martínez

MPRA Paper from University Library of Munich, Germany

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 economy. 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. (search for similar items in EconPapers)
JEL-codes: E43 F31 (search for similar items in EconPapers)
Date: 2017-01-26
New Economics Papers: this item is included in nep-mac, nep-opm and nep-upt
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Related works:
Journal Article: 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:pra:mprapa:76441

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