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Counterfeiting as Private Money in Mechanism Design

  • RICARDO CAVALCANTI
  • ED NOSAL

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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File URL: http://hdl.handle.net/10.1111/j.1538-4616.2011.00456.x
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Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 43 (2011)
Issue (Month): (October)
Pages: 625-636

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Handle: RePEc:mcb:jmoncb:v:43:y:2011:i::p:625-636
Contact details of provider: Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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  1. 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.
  2. Stephen D. Williamson, 2002. "Private money and counterfeiting," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 37-57.
  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. Ostroy, Joseph M, 1973. "The Informational Efficiency of Monetary Exchange," American Economic Review, American Economic Association, vol. 63(4), pages 597-610, September.
  5. Ricardo de O. Cavalcanti & Ed Nosal, 2005. "Some benefits of cyclical monetary policy," Working Paper 0511, Federal Reserve Bank of Cleveland.
  6. Edward J. Green & Warren E. Weber, 1996. "Will the new $100 bill decrease counterfeiting?," Working Papers 571, Federal Reserve Bank of Minneapolis.
  7. Ricardo de O. Cavalcanti & Neil Wallace, 1999. "Inside and outside money as alternative media of exchange," Proceedings, Federal Reserve Bank of Cleveland, pages 443-468.
  8. Ed Nosal & Neil Wallace, 2004. "A model of (the threat of) counterfeiting," Working Paper 0401, Federal Reserve Bank of Cleveland.
  9. Klaus Kultti, 1996. "A monetary economy with counterfeiting," Journal of Economics, Springer, vol. 63(2), pages 175-186, June.
  10. 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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