Current Table of Contents

• Trade and Empire*
  We employ a new database of over 21,000 bilateral trade observations from 1870[ndash]1913 to assess the contemporaneous effects of empire on trade. Our analysis shows that belonging to an empire roughly doubled trade relative to those countries that were not part of an empire. The use of a common language, the establishment of currency unions, the monetisation of recently acquired colonies, and the establishment of preferential trade agreements and customs unions help to account for the observed increase in trade associated with empire.
• Discrete Polarisation with an Application to the Determinants of Genocides*
  Inequality and polarisation are two different measures of heterogeneity. As in the case of inequality, the measurement of polarisation was initially developed in the context of a continuous dimension (income). However, in many important dimensions, like ethnicity, there are no available measures of distance across ethnic groups and individuals are mostly separated by the dichotomous perception 'we versus they'. In this article we analyse the theoretical properties of a measure of polarisation based on classifications (discrete polarisation) instead of continuous distances across groups. The second part of the article presents an application of the index of discrete ethnic polarisation to the explanation of genocides.
• Educational Standards in Private and Public Schools*
  When school quality increases with the educational standard set by schools, education before college need not be a hierarchy with private schools offering better quality than public schools. In our model, private schools can offer a lower educational standard at a positive price because they attract students with a relatively high cost of effort, who would find the high standards of public schools excessively demanding. We estimate the key parameters of the model and show that majority voting supports a system where private schools have higher quality in the US and public schools have higher quality in Italy.
• Innovation and Venture Capital Exits*
  This article analyses how start-ups financed by venture capital choose their innovation strategy based on the investor's exit preferences and thereby form different outcomes in the product market. It considers innovation choices and venture capital exits (IPO vs trade sale) in a setting in which entrepreneurs derive private benefits from staying independent, which is better guaranteed under an IPO. The entrepreneur has incentives to distort the innovation strategy in order to induce the venture capitalist to bring the company public. The analysis generates a number of empirical implications for the link between innovation, valuation, venture capital exit routes and market structure.
• Global Factors and Emerging Market Spreads*
  This article shows that a large fraction of the time variability of emerging market bond spreads is explained by the evolution of global factors such as risk appetite, global liquidity and contagion from systemic events such as the Russian default. This link is robust to the inclusion of country-specific factors and helps to provide accurate long-run predictions. By contrast, changes in credit ratings appear to lag spread movements and elicit little additional effect on the pricing of emerging market debt. The results highlight the critical role played by exogenous factors in the evolution of borrowing costs faced by emerging economies.
• The Yield Curve and Macroeconomic Dynamics*
  We show that microfounded DSGE models with nominal rigidities can be successful in replicating features of bond yield data, including sizeable term premia and volatile long-term yields, which have previously been considered puzzling in general equilibrium frameworks. At the same time, sample moments of consumption growth and inflation can be fit relatively well. The improved model performance does not arise directly from the presence of nominal rigidities. However, this feature introduces (short-run) monetary non-neutrality, so that monetary policy affects consumption dynamics and bond prices. A high degree of 'interest rate smoothing' in the policy rule is essential for our results.
• Fiscal Policy and Financial Markets*
  We examine the effect of fiscal policy on sovereign risk spreads and investigate whether the interaction of fiscal variables with political institutions affect financial markets. Using panel data from emerging market countries, we find that revenue-based adjustment lowers spreads more than spending-based adjustment. Financial markets also react to the composition of spending. Cuts in current spending lower spreads more than cuts in investment. We show that debt-financed spending increases sovereign risk, while tax-financed spending lowers spreads, suggesting that international investors prefer the latter. Further, we find evidence that financial markets' reaction to fiscal policy depends on political institutions.
• Energy Prices and the Adoption of Energy-Saving Technology*
  This article investigates the link between factor prices, technology and factor demands. Using plant-level data from the Census of Manufactures, I compare the energy intensity of entrants and incumbents from 1967[ndash]97. A 10% increase in the price of energy reduces the relative energy intensity of entrants by 1%. The estimate implies that technology adoption by incumbents explains a statistically significant but relatively small fraction of changes in aggregate energy demand in the 1970s and 1980s. Furthermore, entrants' technology adoption can reduce the long run effect of energy prices on growth, but by less than previous research has found.
• Financing Constraints and Fixed-term Employment Contracts*
  This article studies the interactions between financing constraints and the employment decisions of firms when both fixed-term and permanent employment contracts are available. It develops the model of an industry where firms face financing frictions and produce output using both fixed-term and permanent workers. Once calibrated, the model shows that financially constrained firms use fixed-term workers more intensely and make them absorb a larger fraction of the total employment volatility than financially unconstrained firms do. We test and confirm the predictions of the model on a panel data of Italian manufacturing firms with detailed information about financing constraints and the type of workers employed by the firms.
• Contest Efforts in Light of Behavioural Considerations*
  This study shows that distortion of probabilities is a possible reason for rent under-dissipation in contests with relatively small number of participants. Such distortion may also result, however, in over-dissipation of the contested rent. Focusing on contests with homogeneous contestants and the commonly studied contest success function, our main results clarify under what circumstances (i) rents are more under-dissipated relative to the standard situation where probabilities are not distorted (ii) rents are under-dissipated, yet less intensely relative to the standard situation where probabilities are not distorted (iii) rents are over-dissipated and (iv) the contest does not possess a symmetric interior equilibrium in pure strategies.