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The stability of electricity prices: estimation and inference of the Lyapunov exponents

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  • Bask , Mikael

    ()
    (Bank of Finland Research)

  • Liu , Tung

    ()
    (Department of Economics, Ball State University)

  • Widerberg , Anna

    ()
    (Department of Economics)

Abstract

The aim of this paper is to illustrate how the stability of a stochastic dynamic system is measured using the Lyapunov exponents. Specifically, we use a feedforward neural network to estimate these exponents as well as asymptotic results for this estimator to test for unstable (chaotic) dynamics. The data set used is spot electricity prices from the Nordic power exchange market. Nord Pool, and the dynamic system that generates these prices appears to be chaotic in one case.

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File URL: http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/0609netti.pdf
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Bibliographic Info

Paper provided by Bank of Finland in its series Research Discussion Papers with number 9/2006.

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Length: 23 pages
Date of creation: 12 Jun 2006
Date of revision:
Handle: RePEc:hhs:bofrdp:2006_009

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Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
Web page: http://www.suomenpankki.fi/en/
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Keywords: feedforward neural network; Nord Pool; Lyapunov exponents; spot electricity prices; stochastic dynamic system;

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References

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  1. Mototsugu Shintani & Oliver Linton, 2003. "Nonparametric neural network estimation of Lyapunov exponents and a direct test for chaos," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 2097, London School of Economics and Political Science, LSE Library.
  2. Simon M. Potter, 1999. "Nonlinear impulse response functions," Staff Reports, Federal Reserve Bank of New York 65, Federal Reserve Bank of New York.
  3. Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, Elsevier, vol. 74(1), pages 119-147, September.
  4. Andrews, Donald W K, 1991. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Econometrica, Econometric Society, Econometric Society, vol. 59(3), pages 817-58, May.
  5. Bask, Mikael & de Luna, Xavier, 2001. "Characterizing the degree of stability of non-linear dynamic models," Umeå Economic Studies 564, Umeå University, Department of Economics.
  6. Bask, Mikael & de Luna, Xavier, 2001. "EMU and the Stability and Volatility of Foreign Exchange: Some Empirical Evidence," Umeå Economic Studies 565, Umeå University, Department of Economics.
  7. Kuan, Chung-Ming & Liu, Tung, 1995. "Forecasting Exchange Rates Using Feedforward and Recurrent Neural Networks," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 10(4), pages 347-64, Oct.-Dec..
  8. Dechert, W D & Gencay, R, 1992. "Lyapunov Exponents as a Nonparametric Diagnostic for Stability Analysis," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 7(S), pages S41-60, Suppl. De.
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Citations

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Cited by:
  1. Giabardo, Paolo & Zugno, Marco & Pinson, Pierre & Madsen, Henrik, 2010. "Feedback, competition and stochasticity in a day ahead electricity market," Energy Economics, Elsevier, Elsevier, vol. 32(2), pages 292-301, March.
  2. Bask, Mikael, 2007. "Measuring potential market risk," Research Discussion Papers, Bank of Finland 20/2007, Bank of Finland.
  3. Bask, Mikael & Widerberg, Anna, 2007. "The Stability and Volatility of Electricity Prices: An Illustration of (lambda, sigma-2) Analysis," Working Papers in Economics 267, University of Gothenburg, Department of Economics.
  4. Bask, Mikael & Widerberg, Anna, 2008. "Market Structure and the Stability and Volatility of Electricity Prices," Working Papers in Economics 327, University of Gothenburg, Department of Economics.
  5. G. Papaioannou & P. Papaioannou & N. Parliaris, 2014. "Modeling the stylized facts of wholesale system marginal price (SMP) and the impacts of regulatory reforms on the Greek Electricity Market," Papers 1401.5452, arXiv.org.

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