WHY IS CASH (STILL) SO ENTRENCHED? INSIGHTS FROM CANADIAN SHOPPING DIARIES

One similarity among many developed economies is the predominance of cash over electronic payments in terms of payment frequency, especially for the low‐value transactions that are the bulk of retail payments. We use the Bank of Canada's 2009 Methods‐of‐Payment Survey, which collected information on consumers' payment choices through shopping diaries, to estimate a simple model of choice between cash and other payment methods. Results suggest that the main reasons cash is still a popular payment instrument in Canada, especially for low‐value transactions, are its wide acceptance among merchants compared with other alternatives, speed and ease of use, and low marginal cost when on hand. (JEL E41, D12, L81)     

Capital asset pricing model in Portugal: Evidence from fractal regressions

We examine risk profiles of the Portuguese stock market index component stocks using a novel approach to the classical capital asset pricing model (CAPM). Specifically, we estimate the CAPM via fractal regressions that allow studying the marginal effects at selected scales. In this way, we can reveal whether the risk is perceived differently by market participants with different investment horizons. Apart from the analysis itself, we provide new statistical insights into the issue of separating and comparing the scale-specific effects with statistical validity. We find several stocks deviating from an expected risk perception homogeneity across investment horizons. This is true for both analysed periods, i.e. before and after the global financial crisis. There are also several stocks that changed their relationship to the market portfolio in between, which has strong implications for possible portfolio construction. The proposed methodology is not limited to financial topics but can be used in any discipline where the scale-specific marginal effects might be of interest.     

The political economy of state-level adoption of natural resource damage programs

U.S. states can implement programs to pursue damage recovery when firms cause natural resource damages (NRDs). We present new empirical evidence that such programs have effectively reduced oil spills in states that adopt them. However, only 34 states had implemented such programs by 2003. We analyze data on 50 states and the District of Columbia from 1980 to 2003 to ascertain the likely determinants of NRD program adoption. We find that states with many environmental accidents adopt programs more rapidly, while income and interest-group pressure have no significant impact on the process. While non-adopting states might benefit from such programs, at least NRD programs are being adopted most rapidly where they can do the most good.      

Pitfalls in estimates of the relationship between stock returns and inflation

Empirical tests of the Fisher hypothesis give conflicting results, regardless of whether income growth is accommodated in the estimates. This paper shows theoretically and empirically that standard methods of testing the Fisher hypothesis give biased results and that the bias depends on the specification of the Fisher equation, the process governing inflation, measurement of inflation expectations, and the time aggregation of the data. Alternative tests show that share markets take several years to adjust to innovations in inflation and therefore that the Fisher hypothesis cannot be maintained. Helpful comments and suggestions from Hans Christian Kongsted, Darrel Turkington and seminar participants at the University of Western Australia, and University of Konstanz and, particularly, two referees, are gratefully acknowledged.     

A quantitative explanation of the low productivity in South–Eastern European economies: the role of misallocations

It is well known that southeast Europe is the least developed area in Europe. Using a methodology based on the idea of heterogeneous firms, this paper studies the degree to which firm heterogeneity and resource misallocation can explain the lower TFP in southeast Europe. The results show a significant degree of heterogeneity and resource misallocation, although the results are sensitive to the calibration used. There is evidence that firm-level productivity depends on firm size, while taxation negatively influences it. There is also some evidence that foreign-owned firms are more competitive, as are exporting firms. Results are generally robust across the various specifications used, but less so relative to the measure of productivity used. Additional evidence suggests that infrastructure-related obstacles as well as institutional instability drive the output distortion, while no factor is underlined as a significant driver of capital distortions, suggesting the need for better data sources for the latter.     

Vasectomy bonuses and completed family size in India

This paper discusses the consequences in rural India of a certain rational household decision function on the number of children born in the family when birth control opportunities are available. Households are assumed to choose whether or not to practice birth control after each child is born on the basis of maximising expected utility as a function of the consumption per head and the number of members in the family. Uncertainty arises on account of the different evaluation of children of different sexes. The model is then used to predict how completed family size would change if a government agency paid bonuses for smaller families.