Examining the Consumption Behavior of Households Caused by Changing the Utility Function Using the DSGE Model

The utility function and consumption behavior within a society exert a profound influence over both household conduct and broader macroeconomic dynamics, thereby exerting a pivotal role in fostering consumption and economic growth and prosperity. consequently, the examination and analysis of household consumption behavior stand as a cornerstone in economic inquiry and policy formulation. this paper seeks to investigate the steady state of a small open economy in the presence of imperfect asset markets and proposes three standard and alternative models. three disparate specifications are presumed: (1) an endogenous discount factor model; (2) a debt-elastic interest-rate premium model; and (3) a portfolio adjustment costs model. this study employs a dsge model and uses seasonal statistical data from 1977 to 2020 to emulate, scrutinize, and elucidate the intricacies of household macroeconomic variables, particularly delving into the repercussions of economic perturbations while considering shifts in household budget constraints. the empirical findings from our investigation reveal an intriguing outcome: when subjected to alterations in the utility function governing consumption behavior, all three models exhibited remarkably similar responses to the ensuing shock. notably, the second model demonstrated the least volatility in consumption fluctuations, concurrently displaying the highest degree of serial correlation with the consumption variable. conversely, the third model exhibited the most pronounced interplay between production and consumption variables, as evidenced by our comparative analysis of consumption variable changes across the trio of models. this study refers to the intricate nexus of utility functions and household consumption behaviour, offering invaluable insights into the macroeconomic underpinnings especially consumption behavior that shape our consumption societies.