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Murphy-Topel adjustment of the variance-covariance matrix of a two-step panel data model: Evidence from competition-fragility nexus in banking

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  • Ion Lapteacru

    (Larefi, Department of Economics, University of Bordeaux)

Abstract

We develop the Murphy-Topel adjustment of the variance-covariance matrix for two-step panel data models. We apply it on the competition-fragility nexus in banking with different samples for two equations. Indeed, this issue is often observed in this field of research. A competition measure of banks is constructed for each country (first equation), whereas a risk measure is regressed on the entire sample of countries (second equation). Any statistical adjustment will only provide approximate results for the second equation, because of possible correlations between the results of both models. As a precise adjustment, the Murphy-Topel method seems to be more appropriate.

Suggested Citation

  • Ion Lapteacru, 2017. "Murphy-Topel adjustment of the variance-covariance matrix of a two-step panel data model: Evidence from competition-fragility nexus in banking," Economics Bulletin, AccessEcon, vol. 37(2), pages 902-910.
  • Handle: RePEc:ebl:ecbull:eb-16-00471
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    References listed on IDEAS

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    Cited by:

    1. Lapteacru, Ion, 2017. "Market power and risk of Central and Eastern European banks: Does more powerful mean safer?," Economic Modelling, Elsevier, vol. 63(C), pages 46-59.

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    More about this item

    Keywords

    Banking; Murphy-Topel adjustment; bank competition; bank risk.;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics

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