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A model of (the threat of) counterfeiting

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  • Ed Nosal
  • Neil Wallace
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    Abstract

    A simple matching-model of money with the potential for counterfeiting is constructed. In contrast to the existing literature, counterfeiting, if it occurred, would be accompanied by two distortions: costly production of counterfeits and harmful effects on trade. However, application of the Cho-Kreps refinement is shown to imply that there is no equilibrium with counterfeiting. If the cost of producing counterfeits is low enough, then there is no monetary equilibrium. Otherwise, there is a monetary equilibrium without counterfeiting.

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    Bibliographic Info

    Paper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 0401.

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    Date of creation: 2004
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    Handle: RePEc:fip:fedcwp:0401

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    Related research

    Keywords: Counterfeits and counterfeiting;

    This paper has been announced in the following NEP Reports:

    References

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    1. Edward J. Green & Warren Weber, 1996. "Will the New $100 Bill Decrease Counterfeiting?," Macroeconomics 9609003, EconWPA, revised 11 Sep 1996.
    2. François R. Velde & Warren E. Weber & Randall Wright, 1999. "A Model of Commodity Money, with Applications to Gresham's Law and the Debasement Puzzle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(1), pages 291-323, January.
    3. Shouyong Shi, 1995. "Money and Prices: A Model of Search and Bargaining," Working Papers 916, Queen's University, Department of Economics.
    4. Cho, In-Koo & Kreps, David M, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 179-221, May.
    5. Williamson, Steve & Wright, Randall, 1994. "Barter and Monetary Exchange under Private Information," American Economic Review, American Economic Association, vol. 84(1), pages 104-23, March.
    6. Trejos, Alberto & Wright, Randall, 1995. "Search, Bargaining, Money, and Prices," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 118-41, February.
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    Cited by:
    1. Charles M. Kahn & William Roberds, 2005. "Credit and identity theft," Conference Series ; [Proceedings], Federal Reserve Bank of Boston.
    2. Richard Dutu & Ed Nosal & Guillaume Rocheteau, 2005. "On the recognizability of money," Working Paper 0512, Federal Reserve Bank of Cleveland.

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