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The threat of counterfeiting in competitive search equilibrium

Listed author(s):
  • Shao, Enchuan

This paper studies counterfeiting of bank notes in a monetary model under competitive search. The application of the refinement scheme proposed by Guerrieri et al. (2010) shows that there is no equilibrium with counterfeiting. However, due to the entry margin, counterfeiting poses a threat to the existence of a monetary equilibrium: there is no monetary equilibrium if the cost of producing counterfeits is low enough. Moreover, the threat of counterfeiting can generate an endogenous resalability constraint. An extension of the model is provided which allows the threat of counterfeiting to materialize, in that some buyers cannot observe the offers, and therefore search randomly. Counterfeit notes are produced by those buyers who randomly search.

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File URL: http://www.sciencedirect.com/science/article/pii/S0165188914001791
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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 47 (2014)
Issue (Month): C ()
Pages: 168-185

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Handle: RePEc:eee:dyncon:v:47:y:2014:i:c:p:168-185
DOI: 10.1016/j.jedc.2014.07.016
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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  1. Shao Enchuan, 2009. "Money and Barter under Private Information," The B.E. Journal of Macroeconomics, De Gruyter, vol. 9(1), pages 1-38, February.
  2. Nosal, Ed & Wallace, Neil, 2007. "A model of (the threat of) counterfeiting," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 994-1001, May.
  3. Ricardo Cavalcanti & Ed Nosal, 2011. "Counterfeiting as Private Money in Mechanism Design," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43, pages 625-636, October.
  4. Guillaume Rocheteau & Randall Wright, 2005. "Money in Search Equilibrium, in Competitive Equilibrium, and in Competitive Search Equilibrium," Econometrica, Econometric Society, vol. 73(1), pages 175-202, January.
  5. Ennis, Huberto M., 2008. "Search, money, and inflation under private information," Journal of Economic Theory, Elsevier, vol. 138(1), pages 101-131, January.
  6. Williamson, Steve & Wright, Randall, 1994. "Barter and Monetary Exchange under Private Information," American Economic Review, American Economic Association, vol. 84(1), pages 104-123, March.
  7. Briana Chang, 2011. "Adverse Selection and Liquidity Distortion in Decentralized Markets," Discussion Papers 1513, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. Faig Miquel & Jerez Belén, 2006. "Inflation, Prices, and Information in Competitive Search," The B.E. Journal of Macroeconomics, De Gruyter, vol. 6(1), pages 1-34, September.
  9. Li, Yiting & Rocheteau, Guillaume, 2011. "On The Threat Of Counterfeiting," Macroeconomic Dynamics, Cambridge University Press, vol. 15(S1), pages 10-41, April.
  10. Benjamin Lester & Andrew Postlewaite & Randall Wright, 2011. "Information and Liquidity," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43, pages 355-377, October.
  11. repec:oup:restud:v:79:y::i:3:p:1209-1238 is not listed on IDEAS
  12. Yiting Li & Guillaume Rocheteau & Pierre-Olivier Weill, 2012. "Liquidity and the Threat of Fraudulent Assets," Journal of Political Economy, University of Chicago Press, vol. 120(5), pages 000.
  13. Shao, Enchuan & Fung, Ben S.C., 2016. "Counterfeit quality and verification in a monetary exchange," Economic Modelling, Elsevier, vol. 52(PA), pages 13-25.
  14. Delacroix, Alain & Shi, Shouyong, 2013. "Pricing and signaling with frictions," Journal of Economic Theory, Elsevier, vol. 148(4), pages 1301-1332.
  15. Dong, Mei & Jiang, Janet Hua, 2014. "Money and price posting under private information," Journal of Economic Theory, Elsevier, vol. 150(C), pages 740-777.
  16. John F. Chant, 2004. "The Canadian Experience with Counterfeiting," Bank of Canada Review, Bank of Canada, vol. 2004(Summer), pages 41-54.
  17. Benjamin Lester, 2011. "Information and Prices with Capacity Constraints," American Economic Review, American Economic Association, vol. 101(4), pages 1591-1600, June.
  18. Ping He & Lixin Huang & Randall Wright, 2005. "Money And Banking In Search Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(2), pages 637-670, May.
  19. Ben Fung & Enchuan Shao, 2011. "Modelling the Counterfeiting of Bank Notes: A Literature Review," Bank of Canada Review, Bank of Canada, vol. 2011(Autumn), pages 29-35.
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