Stochastic Growth Of A Small Open Economy

This article set up a stochastic growth model of a small open economy with the method of stochastic optimization. Under the assumption that whether the conditions are stochastic, the paper set up two equilibrium models. One is a fiscal model of a small open economy with no uncertainty; the other is a stochastic growth model of a small open economy. In the fiscal model of a small open economy with no uncertainty, the thesis obtains results as follows. Firstly, if the consumers in economy have identical degrees of risk aversion, a perfectly pooled capital portfolio shares in the economy will be obtained. Secondly, the economic growth of the small country will be enhanced with the entry of the foreign productive risk and will be slowed down under the circumstance that the foreign productive shocks are no risk. Thirdly, the home capital portfolio will flow from the home country to the world with the increase of the home productive shocks. Lastly, the paper analyzes the relation of the home productive risks and the consumption-wealth ratio with the difference of parameters. In the stochastic growth model of a small open economy, stochastic equilibrium is established and obtained macroeconomic equilibrium solutions, some conclusions are drawn. Firstly, the paper obtains the necessary conditions about the economic scale. Secondly, when the representative consumer has higher degree of risk aversion, the production shocks will accelerate the growth; when the representative consumer has lower degree of risk, the productive shocks have negative relativity with the expected economic growth ratio. Thirdly, when the consumer has higher degree of risk aversion, the consumption-wealth ratio have negative relativity with the productive shocks and the government expenditure shocks, when the consumer has lower degree of risk aversion, the opposition conclusions are obtained. Fourthly, when the consumer has higher degree of risk aversion, the productive shocks and the government expenditure shocks have positive relativity with the ratio of capital and wealth and have negative relativity with the ratio of world bond and wealth. Lastly, the paper obtains that the increase of the ratio of capital and wealth and the productive shocks will slow down welfare, and the expression of the world economic growth rate is the linear combination of the growth rates of the small open countries.