Do markup dynamics reflect fundamentals or changes in conduct?

John Juselius, Moshe Kim and Staffan Ringbom

No 12/2009, Bank of Finland Research Discussion Papers from Bank of Finland

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 (search for similar items in EconPapers)
JEL-codes: C32 C51 G20 L13 L16 (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (1)

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Journal Article: Do markup dynamics reflect fundamentals or changes in conduct? (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bofrdp:rdp2009_012

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