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Price Search, Consumption Inequality, and Expenditure Inequality over the Life Cycle

Author

Listed:
  • Yavuz Arslan
  • Temel Taskin

Abstract

In 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.

Suggested Citation

  • Yavuz Arslan & Temel Taskin, 2012. "Price Search, Consumption Inequality, and Expenditure Inequality over the Life Cycle," Working Papers 1212, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    • Handle: RePEc:tcb:wpaper:1212
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    File URL: https://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Publications/Research/Working+Paperss/2012/12-12
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    Cited by:

    1. is not listed on IDEAS
    2. Kiss, Regina & Strasser, Georg, 2024. "Inflation heterogeneity across households," Working Paper Series 2898, European Central Bank.
    3. Claudia Milena Pico Bonilla & Luis Eduardo Sandoval Garrido, 2024. "Intertemporal consumption and lifecycle in a pandemic context: an experimental approximation," Revista Tendencias, Universidad de Narino, vol. 25(2), pages 57-85.

    More about this item

    Keywords

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    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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