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

Yavuz Arslan and Temel Taskin

Working Papers from Research and Monetary Policy Department, Central Bank of the Republic of Turkey

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.

Keywords: Consumption inequality; price search; incomplete markets; life cycle models; partial insurance (search for similar items in EconPapers)
JEL-codes: D10 D91 E21 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-dge and nep-ias
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https://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN ... g+Paperss/2012/12-12 (application/pdf)

Related works:
Working Paper: Price search, consumption inequality, and expenditure inequality over the life-cycle (2020)
Working Paper: Price Search, Consumption Inequality, and Expenditure Inequality over the Life Cycle (2016)
Working Paper: Price Search, Consumption Inequality, and Expenditure Inequality over the Life Cycle (2014)
Working Paper: Price search, consumption inequality, and expenditure inequality over the life cycle (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:tcb:wpaper:1212

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