An 'Ideal' Decomposition of Industry Dynamics: An Application to the Nationwide and State Level U.S. Banking Industry

Yongil Jeon and Stephen Miller
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Yongil Jeon: Central Michigan University

No 2005-25, Working papers from University of Connecticut, Department of Economics

Abstract: This paper considers the aggregate performance of the banking industry, applying a modified and extended dynamic decomposition of bank return on equity. The aggregate performance of any industry depends on the underlying microeconomic dynamics within that industry . adjustments within banks, reallocations between banks, entry of new banks, and exit of existing banks. Bailey, Hulten, and Campbell (1992) and Haltiwanger (1997) develop dynamic decompositions of industry performance. We extend those analyses to derive an ideal decomposition that includes their decomposition as one component. We also extend the decomposition, consider geography, and implement decomposition on a state-by-state basis, linking that geographic decomposition back to the national level. We then consider how deregulation of geographic restrictions on bank activity affects the components of the state-level dynamic decomposition, controlling for competition and the state of the economy within each state and employing fixed- and random-effects estimation for a panel database across the fifty states and the District of Columbia from 1976 to 2000.

Keywords: aggregate fluctuations; dynamic decomposition; productivity (search for similar items in EconPapers)
JEL-codes: G2 L1 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2005-06
New Economics Papers: this item is included in nep-ent and nep-fin
Note: Previous versions of this paper were presented at the University of California, San Diego, the Bank of England, and Yonsei University.
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Working Paper: An 'Ideal' Deconposition of Industry Dynamics: An Application to the Nationwide and State Level U.S. Banking Industry (2002)
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