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 InfoPaper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/4226.
Date of creation: Feb 2010
Date of revision:
Publication status: Published in Economics Bulletin, 2010, Vol. 30, no. 1. pp. 558-576.Length: 18 pages
EUA; CER; Vector Autoregression; Impulse Response Function; Cointegration; Vector Error Correction Model; EU ETS; Price Discovery;
Other versions of this item:
- Julien Chevallier, 2010. "EUAs and CERs: Vector Autoregression, Impulse Response Function and Cointegration Analysis," Economics Bulletin, AccessEcon, vol. 30(1), pages 558-576.
- Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
- C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
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