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Nominal Exchange Rate Determinacy under the Threat of Currency Counterfeiting

Gomis-Porqueras, Pedro; Kam, Timothy; Waller, Christopher


We study the endogenous choice to accept fiat objects as media of exchange and their implications for nominal exchange rate determination. We consider a two-country environment with two currencies that can be used to settle any transactions. However, currencies can be counterfeited at a fixed cost and the decision to counterfeit is private information. This induces equilibrium liquidity constraints on the currencies in circulation. We show that the threat of counterfeiting can pin down the...[Show more]

CollectionsANU Research Publications
Date published: 2017
Type: Journal article
Source: American Economic Journal: Macroeconomics
DOI: 10.1257/mac.20150172
Access Rights: Open Access


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