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Why do electricity prices jump? Empirical evidence from the Nordic electricity market

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  • Hellström, Jörgen
  • Lundgren, Jens
  • Yu, Haishan

Abstract

The paper empirically explores the possible causes behind electricity price jumps in the Nordic electricity market, Nord Pool. A time-series model (a mixed GARCH–EARJI jump model) capturing the common statistical features of electricity prices is used to identify price jumps. By the model, a categorical variable is defined distinguishing no, positive and negative jumps. The causes for the jumps are then explored through the use of ordered probit models in a second stage. The empirical results indicate that the structure of the market plays an important role in whether shocks in the demand and supply for electricity translate into price jumps.

Suggested Citation

  • Hellström, Jörgen & Lundgren, Jens & Yu, Haishan, 2012. "Why do electricity prices jump? Empirical evidence from the Nordic electricity market," Energy Economics, Elsevier, vol. 34(6), pages 1774-1781.
    • Handle: RePEc:eee:eneeco:v:34:y:2012:i:6:p:1774-1781
    DOI: 10.1016/j.eneco.2012.07.006
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    References listed on IDEAS

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    More about this item

    Keywords

    Electricity price; Price jumps;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L69 - Industrial Organization - - Industry Studies: Manufacturing - - - Other
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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