Price Search, Consumption Inequality, and Expenditure Inequality over the Life Cycle
AbstractIn this paper, we incorporate a price search decision into an incomplete markets model and differentiate consumption from expenditure. In our model, consumers are allowed to allocate part of their time on searching for low prices which leads to an endogenous price dispersion. A plausibly calibrated version of the model predicts that the cross-sectional variance of consumption is, on average, 15% smaller than the cross-sectional variance of expenditure throughout the life cycle. Price search has an alternative productive activity role and provides a partial insurance mechanism against bad income shocks. We also discuss some policy implications.
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Bibliographic InfoPaper provided by Research and Monetary Policy Department, Central Bank of the Republic of Turkey in its series Working Papers with number 1212.
Date of creation: 2012
Date of revision:
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More information through EDIRC
Consumption inequality; price search; incomplete markets; life cycle models; partial insurance;
Other versions of this item:
- Arslan, Yavuz & Taskin, Temel, 2011. "Price search, consumption inequality, and expenditure inequality over the life cycle," MPRA Paper 34874, University Library of Munich, Germany.
- D10 - Microeconomics - - Household Behavior - - - General
- D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
- E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-03-28 (All new papers)
- NEP-DGE-2012-03-28 (Dynamic General Equilibrium)
- NEP-IAS-2012-03-28 (Insurance Economics)
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