On the threat of counterfeiting
We study counterfeiting of currency in a search–theoretic model of monetary exchange. In contrast to Nosal and Wallace (2007), we establish that counterfeiting does not pose a threat to the existence of a monetary equilibrium; i.e., a monetary equilibrium exists irrespective of the cost of producing counterfeits, or the ease with which genuine money can be authenticated. However, the possibility to counterfeit ?at money can affect its value, velocity, output and welfare, even if no counterfeiting occurs in equilibrium. We provide two extensions of the model under which the threat of counterfeiting can materialize: counterfeits can circulate across periods, and sellers set terms of trades in some matches. Policies that make the currency more costly to counterfeit or easier to recognize raise the value of money and society’s welfare, but the latter policy does not always decrease counterfeiting.
|Date of creation:||2008|
|Date of revision:|
|Contact details of provider:|| Postal: 1455 East 6th St., Cleveland OH 44114|
Web page: http://www.clevelandfed.org/
More information through EDIRC
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Randall Wright & Guillame Rocheteau, 2003.
"Money in Search Equilibrium, in Competitive Equilibrium, and in Competitive Search Equilibrium,"
666156000000000302, UCLA Department of Economics.
- 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, 01.
- Guillaume Rocheteau & Randall Wright, 2003. "Money in Search Equilibrium, in Competitive Equilibrium, and in Competitive Search Equilibrium," PIER Working Paper Archive 03-031, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
- Guillaume Rocheteau & Randall Wright, 2004. "Money in search equilibrium, in competitive equilibrium, and in competitive search equilibrium," Working Paper 0405, Federal Reserve Bank of Cleveland.
- KOHLBERG, Elon & MERTENS, Jean-FranÃ§ois, .
"On the strategic stability of equilibria,"
CORE Discussion Papers RP
716, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Zhu, Tao & Wallace, Neil, 2007. "Pairwise trade and coexistence of money and higher-return assets," Journal of Economic Theory, Elsevier, vol. 133(1), pages 524-535, March.
- Ricardo Lagos & Randall Wright, 2004.
"A unified framework for monetary theory and policy analysis,"
346, Federal Reserve Bank of Minneapolis.
- Ricardo Lagos & Randall Wright, 2005. "A Unified Framework for Monetary Theory and Policy Analysis," Journal of Political Economy, University of Chicago Press, vol. 113(3), pages 463-484, June.
- Ricardo Lagos & Randall Wright, 2002. "A unified framework for monetary theory and policy analysis," Working Paper 0211, Federal Reserve Bank of Cleveland.
When requesting a correction, please mention this item's handle: RePEc:fip:fedcwp:0809. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (4D Library)
If references are entirely missing, you can add them using this form.