Current Table of Contents

• Information and Strategic Political Polarisation*
  We develop a model of electoral competition in which two opportunistic candidates select their policy position and invest in quality. Policy positions are observed and, during the campaign, the press reveals some information about quality. We demonstrate that when information is imperfect, the Black-Downs median voter theorem fails to hold. For intermediate information levels, the unique equilibrium is such that candidates propose policies different from the median voter's bliss point. By contrast, convergence to the median occurs when quality is (almost) always or (almost) never revealed. We also show that a profit-maximising press may collect more information than socially optimal.
• Contradiction as a form of Contractual Incompleteness*
  A simple model is presented, in which contradictory instructions are viewed as a type of contract incompleteness. The model provides a complexity-based rationale for contradictory instructions. If there are complexity bounds on the contract, there may be an incentive to introduce contradictions, leaving for another agent the task of interpreting them. The optimal amount of contradictions depends on the complexity bound, the conflict of interests with the interpreter and the institutional constraints on his interpretations. In particular, a higher complexity bound may result in a larger amount of contradictions.
• Procedural Rationality and Equilibrium Trust*
  This article examines the determinants of steady state trust in a population of principals and agents, where the former learn from experience using boundedly rational procedures. For any distribution of agent types, the long-run distribution of principal behaviour is characterised. Heterogeneity in the behaviour of principals persists under both the sampling procedure (Osborne and Rubinstein, 1998) and the maximum average procedure (Rustichini, 2003). Despite its greater sophistication, the maximum average procedure can result in poorer performance than the sampling procedure, both from the perspective of the principal and also with respect to aggregate payoffs.
• A Macro-Finance Model of the Term Structure, Monetary Policy and the Economy*
  This article develops and estimates a macro-finance model that combines a canonical affine no-arbitrage finance specification of the term structure of interest rates with standard macroeconomic aggregate relationships for output and inflation. Based on this combination of yield curve and macroeconomic structure and data, we obtain several interesting results: (1) the latent term structure factors from no-arbitrage finance models appear to have important macroeconomic and monetary policy underpinnings, (2) there is no evidence of a slow partial adjustment of the policy interest rate by the central bank, and (3) both forward-looking and backward-looking elements play roles in macroeconomic dynamics.
• The Skill Bias of World Trade*
  This article suggests that international trade, even between identical countries, can raise the relative demand for skilled labour. It shows that a simple generalisation of Krugman's (1979) model of trade in differentiated products has implications for the skill premium, through economies of scale rather than Hecksher-Ohlin effects, that are consistent with a number of stylised facts. It provides new evidence in support of these results by showing that increases in market size lead to higher returns to education, skill premia and income inequality.
• Glass Ceilings or Sticky Floors? Statistical Discrimination in a Dynamic Model of Hiring and Promotion*
  I show that when two groups differ in (i) their average skill level, (ii) the precision with which they can signal their skill prior to entering the labour market, and/or (iii) the frequency with which they have the opportunity to signal their skill prior to entering the labour market, then even if firms become increasingly informed regarding each worker's skill over time, equally skilled workers from different groups will have different likelihoods of making it to top jobs in the economy, even though there is no discrimination when it comes to promotion to these top jobs.
• The gender gap in early-career wage growth
  In the UK the gender pay gap on entry to the labour market is approximately zero but ten years after labour market entry, there is a gender wage gap of almost 25 log points. This article explores the reason for this gender gap in early-career wage growth, considering three main hypotheses [ndash] human capital, job-shopping and 'psychological' theories. Human capital factors can explain about 11 log points, job-shopping about 1.5 log points and the psychological theories up to 4.5 log points depending on the specification. But a substantial unexplained gap remains: women who have continuous full-time employment, have had no children and express no desire to have them earn about 8 log points less than equivalent men after 10 years in the labour market.
• Staying in the Classroom and out of the maternity ward? The effect of compulsory schooling laws on teenage births*
  This article investigates whether increasing mandatory educational attainment through compulsory schooling legislation encourages women to delay childbearing. We use variation induced by changes in compulsory schooling laws in both the US and Norway to estimate the effect in two very different institutional environments. We find evidence that increased compulsory schooling does in fact reduce the incidence of teenage childbearing in both the US and Norway, and these estimates are quite robust to various specification checks. These results suggest that legislation aimed at improving educational outcomes may have spillover effects onto the fertility decisions of teenagers.
• Forsaking all others? The effects of same-sex partnership laws on risky sex*
  One conjectured benefit of a marriage-like legal status for same-sex couples is a reduction in the incidence of sexually transmitted infections (STI). In this study, I discuss how such a policy might influence risky sexual behaviour and STI rates. I also present reduced-form empirical evidence on whether same-sex partnership laws have reduced STI rates, using country-level panel data from Europe. The results suggest that these laws led to statistically significant reductions in syphilis but not in infections that are not sexually transmitted. However, their effects on the incidence of gonorrhoea and HIV were also smaller and statistically imprecise.
• Oral Interventions Versus Actual Interventions in Fx Markets – An Event-Study Approach*
  The article assesses whether exchange rate communication [ndash] or oral intervention [ndash] has been an effective policy tool for monetary authorities to influence exchange rates. It employs an event-study methodology that identifies intervention clusters or events. For the euro[ndash]dollar and the dollar[ndash]yen exchange rates, the article finds that both oral intervention events and actual intervention events have been highly successful over the short to medium-run. The article shows that the success of intervention events is related to market conditions and to the coordination among policy makers. It also finds that the success of communication and actual interventions is largely unrelated to monetary policy, thus suggesting that interventions primarily function through a coordination channel.
• Uncertainty and Disagreement in Economic Prediction: The Bank of England Survey of External Forecasters*
  This article introduces a new source of survey data, namely the Bank of England Survey of External Forecasters. The survey collects point and density forecasts of inflation and GDP growth and, hence, offers the opportunity of constructing direct measures of uncertainty. We present a simple statistical framework in which to define and interrelate measures of uncertainty and disagreement. The resulting measures are compared with other direct measures of uncertainty, nationally and internationally. A significant, sustained reduction in inflation uncertainty followed the 1997 granting of operational independence to the Bank of England to pursue a monetary policy of inflation targeting.
• Forecasting Substantial Data Revisions in the Presence of Model Uncertainty*
  A recent revision to the preliminary measurement of GDP(E) growth for 2003Q2 caused considerable press attention, provoked a public enquiry and prompted a number of reforms to UK statistical reporting procedures. In this article, we compute the probability of 'substantial revisions' that are greater (in absolute value) than the controversial 2003 revision. The predictive densities are derived from Bayesian model averaging over a wide set of forecasting models including linear, structural break and regime-switching models with and without heteroscedasticity. Ignoring the nonlinearities and model uncertainty yields misleading predictives and obscures recent improvements in the quality of preliminary UK macroeconomic measurements.
• Social composition, social conflict and economic development*
  This article investigates how the existence of non-cooperative social groups that appropriate resources either peacefully or through contest affects economic growth when property rights are unenforceable. For symmetric groups it shows that economic growth is generated only in peaceful societies. For the case of asymmetric groups rebel-equilibria are investigated in which a large majority behaves peacefully although challenged by an aggressive minority. The article explains how conflict intensity and the rate of economic growth depend on social fractionalisation, general productivity of the economy, power of social elites and the ease at which resources are appropriated.