Yavuz Arslan

Quality Growth Versus Inflation in Turkey

We estimate average quality growth and upward inflation bias for a set of fifty-one goods in Turkey by using seven waves of the annual Household Budget Survey and TURKSTAT prices from 2003 to 2009. We employ the instrumental variables approach introduced by Bils and Klenow (2001). We find that average quality growth in Turkey is 3.93 percent. Of this 3.93 percent, 2.28 percent is not netted out by TURKSTAT. Consequently, for the set of goods that we study, the estimated inflation bias is 2.28 percentage points.

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

In this paper, we incorporate price search decision into an otherwise standard life-cycle model with incomplete markets and an endogenous labor supply, differentiating consumption from expenditure. In our model, consumers can allocate part of their time to searching for low prices, and this leads to an endogenous price dispersion. We have three contributions. First, we analytically study the determinants of price search and its relation to consumption and expenditure inequalities in a static model. Second, we study quantitatively the role of price search in a dynamic version of the model. A plausible calibration implies that the life-cycle increase in the cross-sectional variance of log consumption is about 40 percent lower than the increase in the cross-sectional variance of log expenditure. Third, we show that price search provides an additional quantitatively significant partial insurance mechanism against adverse income shocks.