EUAs and CERs: Vector Autoregression, Impulse Response Function and Cointegration Analysis
AbstractEUAs are European Union Allowances traded on the EU Emissions Trading Scheme (EU ETS), while Certified Emissions Reductions (CERs) arise from the Clean Development Mechanism under the Kyoto Protocol. These emissions assets attract an increasing attention among brokers, investors and operators on emissions markets, because they may be both used for compliance under the EU ETS (up to fixed limits). This paper proposes a statistical analysis of the inter-relationships between EUA and CER price series, by using vector autoregression, impulse response function, and cointegration analysis on daily data from March 9, 2007 to January 14, 2010. The central results show that EUAs and CERs affect each other significantly through the vector autoregression model, and react quite rapidly to shocks on each other through the impulse response function analysis. Most importantly, both price series are found to be cointegrated, with EUAs leading the price discovery process in the long-term through the vector error correction mechanism.
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Bibliographic InfoArticle provided by AccessEcon in its journal Economics Bulletin.
Volume (Year): 30 (2010)
Issue (Month): 1 ()
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EUA; CER; Vector Autoregression; Impulse Response Function; Cointegration; Vector Error Correction Model; EU ETS; Price Discovery.;
Other versions of this item:
- Chevallier, Julien, 2010. "EUAs and CERs : Vector autoregression, impulse response function and cointegration analysis," Economics Papers from University Paris Dauphine 123456789/4226, Paris Dauphine University.
- C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
- Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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