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Discussion Paper

Construction of Stationary Markov Equilibria in a Strategic Market Game

This paper studies stationary noncooperative equilibria in an economy with fiat money, one nondurable commodity, countably many time periods, no credit or futures market, and a measure space of agents — who may differ in their preferences and in the distributions of their (random) endowments. These agents are immortal, and hold fiat money as a means of hedging against the random fluctuations in their endowments of the commodity. In the aggregate, these fluctuations offset each other, and equilibrium prices are constant.