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

Tai Wei Hu*, Eran Shmaya

*Corresponding author for this work

Research output: Contribution to journalArticle (Academic Journal)peer-review

2 Citations (Scopus)
141 Downloads (Pure)


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.

Original languageEnglish
Pages (from-to)368-382
Number of pages15
JournalJournal of Economic Theory
Early online date29 Jan 2019
Publication statusPublished - Mar 2019

Structured keywords

  • ECON Macroeconomics
  • ECON Microeconomic Theory


  • Inflation
  • Money
  • Saving and consumption
  • Uniqueness


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