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Unique Monetary Equilibrium with Inflation in a Stationary Bewley-Aiyagari Model

Abstract

We prove the existence and uniqueness of stationary monetary equilibrium in a Bewley-Aiyagari model with idiosyncratic shocks. This is an exchange economy with infinite horizon and one consumption good, and with each agent facing idiosyncratic endowment shocks at each period who may trade their endowments with 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 its uniqueness. The argument for uniqueness is based on a new monotonicity result for the average optimal consumption. Unique Monetary Equilibrium with Inflation in a Stationary Bewley-Aiyagari Model. Available from: https://www.researchgate.net/publication/314527181_Unique_Monetary_Equilibrium_with_Inflation_in_a_Stationary_Bewley-Aiyagari_Model [accessed Mar 28, 2017].

Type

Working Paper

Author(s)

Eran Shmaya, Tai-Wei Hu

Date Published

2017

Citations

Shmaya, Eran, and Tai-Wei Hu. 2017. Unique Monetary Equilibrium with Inflation in a Stationary Bewley-Aiyagari Model.

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