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Forecasting daily electricity prices with monthly macroeconomic variables

Author

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  • Foroni, Claudia
  • Ravazzolo, Francesco
  • Rossini, Luca

Abstract

We analyse the importance of macroeconomic information, such as industrial production index and oil price, for forecasting daily electricity prices in two of the main European markets, Germany and Italy. We do that by means of mixed-frequency models, introducing a Bayesian approach to reverse unrestricted MIDAS models (RU-MIDAS). We study the forecasting accuracy for different horizons (from 1 day ahead to 28 days ahead) and by considering different specifications of the models. We find gains around 20% at short horizons and around 10% at long horizons. Therefore, it turns out that the macroeconomic low frequency variables are more important for short horizons than for longer horizons. The benchmark is almost never included in the model confidence set. JEL Classification: C11, C53, Q43, Q47

Suggested Citation

  • Foroni, Claudia & Ravazzolo, Francesco & Rossini, Luca, 2019. "Forecasting daily electricity prices with monthly macroeconomic variables," Working Paper Series 2250, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20192250
    Note: 3243564
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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp2250~385ac2bca5.en.pdf
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    More about this item

    Keywords

    density forecasting; electricity prices; forecasting; MIDAS models; mixed-frequency VAR models;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting

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