Intertemporal shifts in conduct, such as a transition from competitive to anti-competitive 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.
Bibliographical notePublisher Copyright:
© 2014, Springer-Verlag Berlin Heidelberg.
- Cointegrated VAR
- Regime shifts
- Smooth transition regression
ASJC Scopus subject areas
- Statistics and Probability
- Mathematics (miscellaneous)
- Social Sciences (miscellaneous)
- Economics and Econometrics