This paper develops an equilibrium theory of expenditure inequality and price dispersion, to study how retail prices respond to households' shopping behavior. Heterogeneity in the effort to search for prices implies that the price elasticity faced by retailers depends on the composition of demand. For a search market with price posting, I show analytically that retailers optimally charge higher markups if goods are mainly consumed by low-search-effort households. Additional predictions on the shape of posted price distributions are consistent with evidence from US supermarket scanner micro-data. I embed search for prices into an incomplete markets model with non-homothetic preferences and equilibrium price dispersion for multiple varieties. Endogenous heterogeneity in search effort allows the model to match evidence on differences in prices paid for identical goods and reduces inequality in consumption relative to expenditure. I show that the equilibrium response of posted prices across products doubles this direct effect of search on inequality. In addition, the model reconciles conflicting evidence on the cyclicality of retail markups, as aggregate shocks change the composition of demand. Finally, I find that the response of posted prices to a redistributive earnings tax compensates top earners for up to 14% of their losses.

This paper studies the distributive effects of banking sector losses on household consumption and welfare. Using data from the Consumer Expenditure Survey, we document that in response to declines in bank equity returns the consumption of low-income households decreases by roughly twice as much as the average. To understand this result, we develop a heterogeneous-agent model featuring rich income and portfolio heterogeneity and a banking sector subject to financial frictions. The model matches the empirical inequality in consumption responses following a shock to banks’ asset returns. Households at the bottom of the income distribution suffer from losses in labor earnings and from an increase in the cost of borrowing. In contrast, high-income consumers can take advantage of temporarily low asset prices and high future returns and increase their savings to sustain a higher consumption in the medium term. In fact, a fraction of households benefits from distress in the banking sector. A debt-financed asset purchase program can improve welfare, especially for low-income individuals, by dampening the increase in credit spreads and stabilizing investment.

This paper studies how the added worker effect - intra-household insurance through increased spousal labor market participation - varies over the life cycle. We show in U.S. data that the added worker effect is much stronger for young than for old households. A stochastic life cycle model of two-member households with job search in a frictional labor market is capable of replicating this finding. The model suggests that a lower added worker effect for the old is driven primarily by better insurance through asset holdings. Human capital differences between employed young and old contribute to the difference but are quantitatively less important, while differences in job arrival rates play a limited role.

This paper builds a joint theory of endogenous inflation expectations and consumption-savings choices of heterogeneous households. We introduce imperfect information about future inflation rates in a consumption-savings model and allow households to exert costly effort to reduce uncertainty about future price changes. High wealth households are more exposed to future inflation due to its effect on real interest rates and hence choose to be better informed. The joint distribution of wealth and inflation expectations generated by the model is consistent with key features of the data. The implied consumption response to news about inflation is hump shaped in wealth: Wealthier households pay closer attention and update their expectations more in response to any signal received, but change their consumption less after any given update in expectations due to the income effect of future inflation. We show this mechanism to reduce the on-impact aggregate consumption response to forward guidance policies by up to 55% compared to an attentive counterfactual.