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Research

Working papers

Markups, Markdowns and Bankrupcty in the Banking Industry (Job Market Paper)

I develop a new structural approach for the joint estimation of markups on lending rates and markdowns on deposit rates for all US depository institutions between 1992 and 2019. Markups (markdowns) are wedges between the observed price for the output (input) good and the price that would realize if the bank was a price taker on that market. Gross markups have been generally decreasing over time with some procyclical variation, with an average value of 2. Gross markdowns do not display a trend, but feature strong countercyclical variation. When the economy is at the zero lower bound, the average gross markdown is 1.5. The Herfindahl-Hirschman Index and the Boone indicator are significantly different measures. I show that higher markups are associated with a lower bankruptcy probability, which is in contrast with previously known results. Instead, markdowns correlate positively with default probabilities. When considered jointly, markups and markdowns both correlate negatively with the probability of bankruptcy.

Work in progress

  • The Drivers of EU Unemployment during the Great Recession (joint with D. Comin, R. Franceschin and A. Trigari)
  • Bank Heterogeneity, Market Power and Optimal Bank Size
  • An Introduction to GPU Computing for Economists (joint with G. Battiston)

Publications

An Entropy-Based Early Warning Indicator for Systemic Risk (joint with M. Billio, R. Casarin and M. Costola)

2016 - Journal of International Financial Markets, Institutions and Money

Abstract: We analyze the time evolution of systemic risk in Europe by using different entropy measures and construct a new early warning indicator for banking crises. The analysis is based on the cross-sectional distribution of systemic risk measures such as Marginal Expected Shortfall, Delta CoVaR and network connectedness. These measures are conceived at a single institution level for the financial industry in the Euro area and capture different features of the financial market during periods of stress. The empirical analysis shows the forecasting ability of entropy measures in predicting banking crises.


Copyright © 2021 Andrea Pasqualini. Distributed under the MIT license.