A Model of (the Threat of) Counterfeiting

Nosal, Ed; Wallace, Neil

doi:10.2139/ssrn.1025611

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A Model of (the Threat of) Counterfeiting

FRB of Cleveland Working Paper No. 04-01

12 Pages Posted: 30 Oct 2007

See all articles by Ed Nosal

Ed Nosal

Federal Reserve Banks - Federal Reserve Bank of Atlanta

Neil Wallace

Pennsylvania State University, College of the Liberal Arts - Department of Economic

Date Written: March 2004

Abstract

A simple matching-model of money with the potential for counterfeiting is constructed. In contrast to the existing literature, counterfeiting, if it occurred, would be accompanied by two distortions: costly production of counterfeits and harmful effects on trade. However, application of the Cho-Kreps refinement is shown to imply that there is no equilibrium with counterfeiting. If the cost of producing counterfeits is low enough, then there is no monetary equilibrium. Otherwise, there is a monetary equilibrium without counterfeiting.

Keywords: counterfeiting, matching model, Cho-Kreps refinement

JEL Classification: E40

Suggested Citation: Suggested Citation

Nosal, Ed and Wallace, Neil, A Model of (the Threat of) Counterfeiting (March 2004). FRB of Cleveland Working Paper No. 04-01, Available at SSRN: https://ssrn.com/abstract=1025611 or http://dx.doi.org/10.2139/ssrn.1025611