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Estimating the speed of adjustment of European banking efficiency under a quadratic loss function

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  • Koutsomanoli-Filippaki, Anastasia
  • Mamatzakis, Emmanuel C.

Abstract

This paper investigates the speed of adjustment of cost efficiency to equilibrium level in the European banking industry. Our analysis provides for the first time insights into the process of convergence across European banking markets as measured by the speed of adjustment of cost efficiency. In particular, we employ a quadratic loss function specification based on forward-looking rational expectations to model the underlying dynamics of efficiency scores in the banking industry of the EU-15 region over the period 1998-2005. Results show that there is considerable variation in the speed of adjustment across banking systems, while over time it appears that continuing efforts to advance financial integration have led to some improvement in the speed of adjustment to the long-run equilibrium.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 27 (2010)
Issue (Month): 1 (January)
Pages: 1-11

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Handle: RePEc:eee:ecmode:v:27:y:2010:i:1:p:1-11

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Web page: http://www.elsevier.com/locate/inca/30411

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Keywords: Speed of adjustment Rational expectations Cost inefficiency;

References

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Cited by:
  1. Agenor, Pierre-Richard & Aizenman, Joshua, 2008. "Capital Market Imperfections and the Theory of Optimum Currency Areas," Santa Cruz Department of Economics, Working Paper Series qt7668j94x, Department of Economics, UC Santa Cruz.
  2. Kontolaimou, Alexandra & Kounetas, Konstantinos & Mourtos, Ioannis & Tsekouras, Kostas, 2012. "Technology gaps in European banking: Put the blame on inputs or outputs?," Economic Modelling, Elsevier, vol. 29(5), pages 1798-1808.

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