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Unique monetary equilibrium with inflation in a stationary Bewley–Aiyagari model

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  • Hu, Tai-Wei
  • Shmaya, Eran

Abstract

We prove the existence and uniqueness of a stationary monetary equilibrium in a Bewley–Aiyagari model with idiosyncratic shocks. This is an exchange economy with an infinite horizon and one consumption good, and with each agent facing idiosyncratic endowment shocks at each period; the agents may trade their endowments for the only asset, fiat money. The government increases the money supply at a constant growth rate that induces inflation in a stationary monetary equilibrium. We identify the necessary and sufficient condition for a stationary monetary equilibrium (where money has a positive value and the aggregate real balance is constant over time) to exist, and, when it exists, we show that it is unique. The argument for uniqueness is based on a new monotonicity result for the average optimal consumption.

Suggested Citation

  • Hu, Tai-Wei & Shmaya, Eran, 2019. "Unique monetary equilibrium with inflation in a stationary Bewley–Aiyagari model," Journal of Economic Theory, Elsevier, vol. 180(C), pages 368-382.
    • Handle: RePEc:eee:jetheo:v:180:y:2019:i:c:p:368-382
    DOI: 10.1016/j.jet.2019.01.003
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    Cited by:

    1. Bar Light, 2019. "General equilibrium in a heterogeneous-agent incomplete-market economy with many consumption goods and a risk-free bond," Papers 1906.06810, arXiv.org, revised Mar 2021.
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    3. Yuki SHIGETA, 2022. "Existence of Invariant Measure and Stationary Equilibrium in a Continuous-Time One-Asset Aiyagari Model:A Case of Regular Controls under Markov Chain Uncertainty," Discussion papers e-22-010, Graduate School of Economics , Kyoto University.

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    More about this item

    Keywords

    Inflation; Saving and consumption; Money; Uniqueness;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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