Research Discussion Papers, Bank of Finland
No 12/2009:
Do markup dynamics reflect fundamentals or changes in conduct?
Mikael Juselius ()
, Moshe Kim ()
and Staffan Ringbom ()
Abstract: Persistent shifts in equilibria are likely to arise in
oligopolistic markets and may be detrimental to the measurement of conduct,
related markups and intensity of competition. We develop a cointegrated VAR
(vector autoregression) based approach to detect long-run changes in
conduct when data are difference stationary. Importantly, we separate the
components in markups which are exclusively related to long-run changes in
conduct from those explained solely by fundamentals. Our approach does not
require estimation of markups and conduct directly, thereby avoiding
complex problems in existing methodologies related to multiple and changing
equilibria. Results from applying the model to US and five major European
banking sectors indicate substantially different behavior of conventional
raw markups and conduct-induced markups.
Keywords: markups; cointegration; VAR; macroeconomic fundamentals; competition; banking; (follow links to similar papers)
JEL-Codes: C32; C51; G20; L13; L16; (follow links to similar papers)
45 pages, April 22, 2009
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