Imperfect recognizability and coexistence of money and higher-return assets

Tai-Wei Hu ()

Economic Theory, 2013, vol. 53, issue 1, 138 pages

Abstract: Existing solutions to the problem of coexistence of money and higher-return substitutes that rely on imperfect recognizability of the substitutes adopt extreme assumptions: they either have a zero cost of counterfeiting the substitutes or omit plausible refinements that would rule out pooling equilibria. Here coexistence is obtained with a general distribution of positive counterfeiting costs within a signaling-game framework in which the intuitive criterion is invoked. Moreover, if the cost of counterfeiting is small, then any monetary equilibrium that satisfies the intuitive criterion necessarily exhibits coexistence. A continuity assumption on off-equilibrium beliefs is also considered. It is satisfied by equilibria with small use of substitutes, but not by cash-in-advance equilibria. Copyright Springer-Verlag 2013

Keywords: Counterfeiting; Cash-in-advance; Monetary system; Signaling games; E40; E42 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (17)

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DOI: 10.1007/s00199-011-0687-6

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