Research Notes

Forecas t ing E xchange R a t e s - - T h e Case of t h e T~arkish Li ra

PAUL T. MCGRATH AND E. JAMES JENNINGS Purdue University--U.S.A.

Since 1983, Turkey has grown impressively averaging a 5 percent annual real growth of GDP. However, along with growth has come inflation at the average rate of 70 percent per annum as the Turkish lira has fallen by an average of 63 percent per year over the last 20 years. Those investing in 15xrkey thus face a substantial exchange rate risk. However, for short run decisions, of three months or less, the ability to forecast future exchange rates can mitigate this risk. From 1983 to 1999, the lira/dollar exchange rate closely followed an AR(1) process that allowed expected absolute errors to average less than 2 percent. In spite of a change of government, the exchange rate was predictable and continued to reflect Turkish acceptance of high inflation. However, beginning in 2000, Turkey committed to joining the EU and the monetary discipline that this implied. At this point the underlying stochastic process changed from an AR to an MA(1). However, this new" Turkey exchange rate process is also consistent and predictable. One, two, and three month forecast display MAPES of roughly 2 percent, 4 percent, and 6 percent, respectively. (JEL CI)

T h e Po ten t i a l for Exp lo i t a t i on by Spor t s Franchises

PAUL M. SOMMERS Middlebury College--U.S.A.

Teams exploit their monopoly power by forcing cities to buy more games than would be dictated by the conventional monopoly model. Leeds and yon Allmen [The Economics of Sports (2002), p. 164] note: "Since the city cannot choose to host a franchise for a smaller part of a season at a lower price, it must pay the full price or have no franchise at all." The city's residents nontheless enjoy a surplus so long as the city buys all the games (Qm) dictated by the demand curve at the monopoly price (Pro)- If, however, teams confront cities with an all-or-nothing choice, they can induce cities to host more than Qm games. Such action results in a loss of consumer surplus. When does this loss offset the city's initial consumer surplus? If games are produced under conditions of constant cost and the demand schedule for games is a straight line over the relevant range, the size of the loss catches up with the size of the surplus when the city is forced to host 2Qm games. Moreover, it can be shown that the loss is equal to one-half of city's outlay (Pm-Qm) divided by their elasticity of demand for games. (JEL D42, D60)

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