12 Pages Posted: 30 Oct 2007
Date Written: March 2004
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