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On The Threat Of Counterfeiting

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Executive Summary

The authors study the counterfeiting of currency in a search-theoretic model of monetary exchange. In contrast to Nosal and Wallace (2007), they 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.

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