Do Markup Dynamics Reflect Fundamentals or Changes in Conduct?

31 Pages Posted: 9 Apr 2015

See all articles by Mikael Juselius

Mikael Juselius

Bank for International Settlements (BIS) - Monetary and Economic Department; Hanken School of Economics - Department of Economics; University of Helsinki - Department of Political and Economic Studies

Moshe Kim

University of Haifa - Department of Economics

Staffan Ringbom

Swedish School of Economics and Business Administration

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Date Written: April 9, 2015

Abstract

Intertemporal shifts in conduct, such as a transition from competitive to anticompetitive 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.

Keywords: Regime shifts, Conduct, Cointegrated VAR, Smooth transitionarated

JEL Classification: G21, L13, L16, L40

Suggested Citation

Juselius, Mikael and Kim, Moshe and Ringbom, Staffan, Do Markup Dynamics Reflect Fundamentals or Changes in Conduct? (April 9, 2015). Empirical Economics, Vol. 48, No. 3, 2015, Available at SSRN: https://ssrn.com/abstract=2592333

Mikael Juselius

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Hanken School of Economics - Department of Economics ( email )

PO Box 479
FI-00101 Helsinki
Finland

University of Helsinki - Department of Political and Economic Studies ( email )

P.O. Box 54
FIN-00014 Helsinki
Finland

Moshe Kim (Contact Author)

University of Haifa - Department of Economics ( email )

Haifa 31905
Israel
(972) 4 8240115 (Phone)
(972)4-8240059 (Fax)

Staffan Ringbom

Swedish School of Economics and Business Administration ( email )

P.O. Box 479
Helsinki, 00101
Finland
358 9 4313 3416 (Phone)
358 9 4313 3382 (Fax)

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