CONSUMPTION (IN)EFFICIENCY AND FINANCIAL ACCOUNT MANAGEMENT

Authors


Central Bank of the Republic of Turkey, Ankara, Turkey; Email: hulya.saygili@tcmb.gov.tr. Opinions expressed in this study are those of the author and should not be attributed to Central Bank of the Republic of Turkey.

ABSTRACT

Consumption may be inefficient when a household cannot choose the optimal bundle of goods at a minimum cost. After discussing alternative approaches, this paper proposes the use of money metric indirect utility function motivated by Feenstra and Varian in measuring consumption inefficiency. Then, Bamoul–Tobin transactions demand for money model is extended to show how household ability to manage its income, expenditure and financial accounts may affect consumption inefficiency. Results of the stochastic cost frontier approach, which is employed in estimation and the prediction of the European Union household consumption inefficiency, suggest that household expenditure performance is partly explained by the changes in the consumption efficiency and the efficiency is not independent of financial account management.

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