Convergence of Real Capital Market Interest Rates—Evidence from Inflation Indexed Bonds

This paper investigates the convergence of long‐term ex ante real interest rates (RIRs) obtained from Canadian, French, UK, and U.S. inflation indexed government bonds. In contrast to previous research, our evidence suggests full convergence in the long run and, hence, capital market integration. For the same sample period, global convergence is rejected for RIRs measured in conventional terms. From these results, we conclude that previous tests of the long‐run real interest rate parity might have suffered from weak measurement of real capital market interest rates.     

Using Cash to Monitor Liquidity: Implications for Payments,Currency Demand,and Withdrawal Behavior

This paper provides one explanation why cash is still used for transactions despite a broad diffusion of noncash payment instruments. In particular, we argue that a distinctive feature of cash—a glance into one's pocket gives a signal of the remaining budget and past expenses—provides utility to some consumers. Using payment survey data, we show that consumers who need to keep control over their remaining liquidity and who have elevated costs of information processing conduct a larger percentage of payments using cash, withdraw less often, and hold larger cash balances than other consumers.     

SALARY CAP REGULATION IN PROFESSIONAL TEAM SPORTS

This paper analyzes the effects of a percentage‐of‐revenue salary cap in a team sports league with win‐maximizing clubs and flexible talent supply. It shows that a percentage‐of‐revenue cap produces a more balanced league and decreases aggregate salary payments. Taking into account the idiosyncrasies of European football, our paper further highlights the potential conflicts between the league and society. From the perspective of a league governing body, a percentage‐of‐revenue cap always enhances financial stability of win‐maximizing clubs. A social planner, however, will not permit the introduction of such a cap if fans and players unduly suffer. This paper shows under which conditions the social planner accepts (rejects) a salary cap proposed by the league regulator. (JEL D02, D60, L83)     

Identifying Monetary Policy Shocks via Changes in Volatility

A central issue of monetary policy analysis is the specification of monetary policy shocks. In a structural vector autoregressive setting there has been some controversy about which restrictions to use for identifying the shocks because standard theories do not provide enough information to fully identify monetary policy shocks. In fact, to compare different theories it would even be desirable to have over-identifying restrictions that would make statistical tests of different theories possible. It is pointed out that some progress toward over-identifying monetary policy shocks can be made by using specific data properties. In particular, it is shown that changes in the volatility of the shocks can be used for identification. Based on monthly U.S. data from 1965 to 1996 different theories are tested and it is found that associating monetary policy shocks with shocks to nonborrowed reserves leads to a particularly strong rejection of the model whereas assuming that the Fed accommodates demand shocks to total reserves cannot be rejected.     

THE EFFECT OF GATE REVENUE SHARING ON SOCIAL WELFARE

This paper provides a theoretical model of a team sports league based on contest theory and studies the welfare effect of gate revenue sharing. It derives two counterintuitive results. First, it challenges the "invariance proposition" by showing that revenue sharing reduces competitive balance and thus produces a more unbalanced league. Second, the paper concludes that a lower degree of competitive balance compared with the noncooperative league equilibrium yields a higher level of social welfare and club profits. Combining both results, it concludes that gate revenue sharing increases social welfare and club profits in our model. ( JEL L83)     

Local Trends in Price‐to‐Dividend Ratios—Assessment,Predictive Value,and Determinants

Persistent variations of the log price‐to‐dividend ratio (PD) and their economic determinants have attracted a lively discussion in the literature. We suggest a gradually time‐varying state process to govern the persistence of the PD. The adopted state‐space approach offers favorable model diagnostics and finds particular support in out‐of‐sample stock return prediction. We show that this slowly evolving mean process is jointly shaped by the consumption risk, the demographic structure, and the proportion of firms with traditional dividend payout policy during the past 60 years. In particular, the volatility of consumption growth plays the dominant role.