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Counterfeiting as private money in mechanism design

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  • Ricardo Cavalcanti
  • Ed Nosal

Abstract

We describe counterfeiting activity as the issuance of private money, one which is difficult to monitor. Our approach, which amends the basic random-matching model of money in mechanism design, allows a tractable welfare analysis of currency competition. We show that it is not efficient to eliminate counterfeiting activity completely. We do not appeal to lottery devices, and we argue that this is consistent with imperfect monitoring.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 0716.

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Date of creation: 2007
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Handle: RePEc:fip:fedcwp:0716

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Keywords: Counterfeits and counterfeiting ; Money;

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References

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  1. Klaus Kultti, 1996. "A monetary economy with counterfeiting," Journal of Economics, Springer, vol. 63(2), pages 175-186, June.
  2. Edward J. Green & Warren E. Weber, 1996. "Will the new $100 bill decrease counterfeiting?," Working Papers 571, Federal Reserve Bank of Minneapolis.
  3. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-54, August.
  4. Cavalcanti, Ricardo de O & Wallace, Neil, 1999. "Inside and Outside Money as Alternative Media of Exchange," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(3), pages 443-57, August.
  5. Cavalcanti, R. & Erosa, A. & Temzelides, T., 1997. "Private Money and Reserve Management in a Random Matching Model," UWO Department of Economics Working Papers 9715, University of Western Ontario, Department of Economics.
  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.
  7. Ricardo Cavalcanti & Ed Nosal, 2009. "Some benefits of cyclical monetary policy," Economic Theory, Springer, vol. 39(2), pages 195-216, May.
  8. Joseph M. Ostroy, 1972. "The Informational Efficiency of Monetary Exchange," UCLA Economics Working Papers 021, UCLA Department of Economics.
  9. Stephen D. Williamson, 2002. "Private money and counterfeiting," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 37-57.
  10. Nosal, Ed & Wallace, Neil, 2007. "A model of (the threat of) counterfeiting," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 994-1001, May.
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Cited by:
  1. Ricardo de O. Calacanti, 2010. "Inside-money theory after Diamond and Dybvig," Economic Quarterly, Federal Reserve Bank of Richmond, issue 1Q, pages 59-82.
  2. Roberds, William & Schreft, Stacey L., 2009. "Data breaches and identity theft," Journal of Monetary Economics, Elsevier, vol. 56(7), pages 918-929, October.
  3. Guillaume Rocheteau & Pierre-Olivier Weill, 2011. "Liquidity in frictional asset markets," Working Paper 1105, Federal Reserve Bank of Cleveland.
  4. Enchuan Shao, 2013. "The Threat of Counterfeiting in Competitive Search Equilibrium," Working Papers 13-22, Bank of Canada.
  5. Benjamin Lester & Andrew Postlewaite & Randall Wright, 2008. "Information, Liquidity and Asset Prices," PIER Working Paper Archive 08-039, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.

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