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Counterfeit quality and verification in a monetary exchange

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  • Shao, Enchuan
  • Fung, Ben S.C.

Abstract

Recent studies on counterfeiting in a monetary search framework show that counterfeiting does not occur in a monetary equilibrium. These findings are contrary to the observation that counterfeiting of bank notes in some countries has recently experienced rapid increases. In this paper, we construct a model of counterfeiting in which counterfeiting can exist as an equilibrium outcome. A competitive search environment is employed in which sellers post offers and buyers direct their search based on posted offers. When sellers are uninformed, their offers are pooling and thus buyers can extract some rents by using counterfeit money. Therefore, counterfeit notes can coexist with genuine notes under certain conditions. We also explicitly model the interaction between sellers' verification decisions and counterfeiters' choices of counterfeit quality. This allows us to better understand how policies can affect counterfeiting.

Suggested Citation

  • Shao, Enchuan & Fung, Ben S.C., 2016. "Counterfeit quality and verification in a monetary exchange," Economic Modelling, Elsevier, vol. 52(PA), pages 13-25.
    • Handle: RePEc:eee:ecmode:v:52:y:2016:i:pa:p:13-25
    DOI: 10.1016/j.econmod.2015.07.003
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    References listed on IDEAS

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    1. Edward J. Green & Warren E. Weber, 1996. "Will the new $100 bill decrease counterfeiting?," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 20(Sum), pages 3-10.
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    4. 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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    8. Veronica Guerrieri & Robert Shimer & Randall Wright, 2010. "Adverse Selection in Competitive Search Equilibrium," Econometrica, Econometric Society, vol. 78(6), pages 1823-1862, November.
    9. Shao, Enchuan, 2014. "The threat of counterfeiting in competitive search equilibrium," Journal of Economic Dynamics and Control, Elsevier, vol. 47(C), pages 168-185.
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    Cited by:

    1. Rubén Ortuño & José M. Sánchez & Diego Álvarez & Miguel López & Fernando León, 2020. "Neurometrics applied to banknote and security features design," Occasional Papers 2008, Banco de España.
    2. Shao, Enchuan, 2014. "The threat of counterfeiting in competitive search equilibrium," Journal of Economic Dynamics and Control, Elsevier, vol. 47(C), pages 168-185.
    3. Kang, Kee-Youn, 2017. "Counterfeiting, screening and government policy," Journal of Economic Theory, Elsevier, vol. 172(C), pages 26-54.
    4. Nathan Viles & Alexandra Rush & Thomas Rohling, 2015. "The Social Costs of Currency Counterfeiting," RBA Research Discussion Papers rdp2015-05, Reserve Bank of Australia.

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    More about this item

    Keywords

    Money; Search; Counterfeiting; Private information;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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