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Working Paper

A Model of (the Threat of) Counterfeiting

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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.
03.01.2004ISSN 2573-7953 WP 04-01DOI 10.26509/frbc-wp-200401
Keywords counterfeiting, matching model, cho-kreps refinement
JEL Classification Codes E40

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

Nosal, Ed, and Neil Wallace. 2004. “A Model of (the Threat of) Counterfeiting.” Federal Reserve Bank of Cleveland, Working Paper No. 04-01. https://doi.org/10.26509/frbc-wp-200401