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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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    Keywords: Counterfeits and counterfeiting;

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    1. Fran├žois 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.
    2. Williamson, S. & Wright, R., 1991. "Barter and Monetary Exchange Under Private Information," University of Western Ontario, The Centre for the Study of International Economic Relations Working Papers 9107, University of Western Ontario, The Centre for the Study of International Economic Relations.
    3. Edward J. Green & Warren E. Weber, 1996. "Will the new $100 bill decrease counterfeiting?," Working Papers 571, Federal Reserve Bank of Minneapolis.
    4. 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.
    5. Shi Shougong, 1995. "Money and Prices: A Model of Search and Bargaining," Journal of Economic Theory, Elsevier, vol. 67(2), pages 467-496, December.
    6. In-Koo Cho & David M. Kreps, 1997. "Signaling Games and Stable Equilibria," Levine's Working Paper Archive 896, David K. Levine.
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    Cited by:
    1. Charles M. Kahn & William Roberds, 2005. "Credit and identity theft," Working Paper 2005-19, Federal Reserve Bank of Atlanta.
    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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