<abstract xmlns="http://www.w3.org/1999/xhtml">

<p>This paper attempts to present a model that can investigate and compare the effect of utility change on the dominant economy by defining different utility functions for households in which they perform to smooth their consumption paths in each period by using debt. To this end, this research with a glance at the existing economic literature will present a dynamic stochastic general equilibrium model for a small open economy for two countries in which, while diversifying the variables affecting the utility function, the government pays and finances its deficit despite the debt in Budget constraint. The results of the comparison of the two models indicate that in periods of low productivity, the country’s policy is to reduce or export debt which can minimize the consumption reduction. Also, despite the international interest rate in the model the consumption and capital accumulation are reduced to keep pace with the interest rate that the intensity of which depends on the utility function. Finally, it can be said that despite the different utility function, the investor diversifies his risk or his investment portfolio to escape the investment risk.</p>
</abstract>

This paper attempts to present a model that can investigate and compare the effect of utility change on the dominant economy by defining different utility functions for households in which they perform to smooth their consumption paths in each period by using debt. To this end, this research with a glance at the existing economic literature will present a dynamic stochastic general equilibrium model for a small open economy for two countries in which, while diversifying the variables affecting the utility function, the government pays and finances its deficit despite the debt in Budget constraint. The results of the comparison of the two models indicate that in periods of low productivity, the country’s policy is to reduce or export debt which can minimize the consumption reduction. Also, despite the international interest rate in the model the consumption and capital accumulation are reduced to keep pace with the interest rate that the intensity of which depends on the utility function. Finally, it can be said that despite the different utility function, the investor diversifies his risk or his investment portfolio to escape the investment risk.

Investigation of the Role of Change in Utility Function Components and Its Effect on Smooth the Dynamic Movement Path of Model Variables

Department of Economics, The Faculty of Management and Humanities

Studies in Business and Economics

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

This paper attempts to present a model that can investigate and compare the effect of utility change on the dominant economy by defining different utility...

Investigation of the Role of Change in Utility Function Components and Its Effect on Smooth the Dynamic Movement Path of Model Variables

Published Online: May 31, 2022

Page range: 73 - 84

DOI: https://doi.org/10.2478/sbe-2022-0005

Keywords
Risk, Debt, Open Economic Model, Dynamic Stochastic General Equilibrium

© 2022 Izadi Hamidreza, published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Investigation of the Role of Change in Utility Function Components and Its Effect on Smooth the Dynamic Movement Path of Model Variables

Published Online: May 31, 2022

Page range: 73 - 84

DOI: https://doi.org/10.2478/sbe-2022-0005

KeywordsRisk, Debt, Open Economic Model, Dynamic Stochastic General Equilibrium

© 2022 Izadi Hamidreza, published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Keywords
Risk, Debt, Open Economic Model, Dynamic Stochastic General Equilibrium