Working Paper 428

Existence of Steady States With Positive Consumption in the Kiyotaki-Wright Model

Neil Wallace
S. Rao Aiyagari

Revised May 1, 1991

We prove the general existence of steady states with positive consumption in an N goods and fiat money version of the Kiyotaki-Wright (β€œOn money as a median of exchange,” Journal of Political Economy 1989, 97 (4), 927–54) model by admitting mixed strategies. We also show that there always exists a steady state in which everyone accepts a least costly-to-store object. In particular, if fiat money is one such object, then there always exists a monetary steady state. We also establish some other properties of steady states and comment on the relationship between steady states and (incentive) feasible allocations.

Published In: Review of Economic Studies (Vol. 58, No. 5, October 1991, pp. 901-916)

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