Counterfeiting, Screening and Government Policy

46 Pages Posted: 11 Oct 2016 Last revised: 22 Jul 2017

See all articles by Kee-Youn Kang

Kee-Youn Kang

University of Liverpool Management School

Date Written: October 9, 2016

Abstract

We construct a search theoretic model of money in which counterfeit money can be produced at a cost, but agents can screen for fake money also at a cost. Counterfeiting can occur in equilibrium when both costs and the inflation rate are sufficiently low. Optimal monetary policy is the Friedman rule. However, the rationale for the Friedman rule in an economy with the circulation of counterfeit money differs from the conventional mechanism that holds in the model when counterfeiting does not occur. We also study optimal anti-counterfeiting policy that determines the counterfeiting cost and the screening cost.

Keywords: Money, Counterfeiting, Screening, Verification, Search

JEL Classification: D82, D83, E40, E50

Suggested Citation

Kang, Kee-Youn, Counterfeiting, Screening and Government Policy (October 9, 2016). Available at SSRN: https://ssrn.com/abstract=2770719 or http://dx.doi.org/10.2139/ssrn.2770719

Kee-Youn Kang (Contact Author)

University of Liverpool Management School ( email )

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