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Do markup dynamics reflect fundamentals or changes in conduct?

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  • Mikael Juselius
  • Moshe Kim
  • Staffan Ringbom

Abstract

Intertemporal shifts in conduct, such as a transition from competitive to anti-competitive behavior, induce shifts in the firms’ equilibrium price configurations. Such shifts generate non-stationary price dynamics in addition to those which originate from exogenous fundamentals. We exploit this statistical feature to detect potential changes in conduct, as well as measure their effect on prices. Our approach requires only data on prices and fundamentals without necessitating strong assumptions regarding industry structure. Application to United States and European banking sectors indicates substantial differences between conventional credit spreads and components associated with changes in conduct. Copyright Springer-Verlag Berlin Heidelberg 2015

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  • Mikael Juselius & Moshe Kim & Staffan Ringbom, 2015. "Do markup dynamics reflect fundamentals or changes in conduct?," Empirical Economics, Springer, vol. 48(3), pages 1119-1147, May.
    • Handle: RePEc:spr:empeco:v:48:y:2015:i:3:p:1119-1147
    DOI: 10.1007/s00181-014-0823-9
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    More about this item

    Keywords

    Regime shifts; Conduct; Cointegrated VAR; Smooth transition regression; Fundamentals; Banking; G21; L13; L16; L40;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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