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http://ssrn.com/abstract=1428833
 
 

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Do Markup Dynamics Reflect Fundamentals or Changes in Conduct?


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; Universitat Pompeu Fabra - Faculty of Economic and Business Sciences

Staffan Ringbom


Swedish School of Economics and Business Administration

April 24, 2009

Bank of Finland Research Discussion Paper No. 12/2009

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.

Number of Pages in PDF File: 48

Keywords: markups, cointegration, VAR, macroeconomic fundamentals, competition, banking

JEL Classification: C32, C51, G20, L13, L16

working papers series


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Date posted: July 4, 2009  

Suggested Citation

Juselius, Mikael and Kim, Moshe and Ringbom, Staffan, Do Markup Dynamics Reflect Fundamentals or Changes in Conduct? (April 24, 2009). Bank of Finland Research Discussion Paper No. 12/2009. Available at SSRN: http://ssrn.com/abstract=1428833 or http://dx.doi.org/10.2139/ssrn.1428833

Contact Information

Mikael Juselius (Contact Author)
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
University of Haifa - Department of Economics ( email )
Haifa 31905
Israel
(972) 4 8240115 (Phone)
(972)4-8240059 (Fax)
Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )
Ramon Trias Fargas 25-27
Barcelona, 08005
Spain
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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