Multinational Electricity Market Integration and Electricity Price Dynamics
AbstractThe paper empirically explores the electricity price dynamics in the Nordic electricity market, Nord Pool. In particular, the focus is on determining what effect the multinational market integration, during the years 1996-2006, has had on the conditional mean electricity price, its volatility, the price jump-intensity and the price jump size. Empirically the study reveals that the conditional mean electricity price increased when Finland joined the Nord Pool exchange, and the price remained at the higher level when Denmark also joined. Turning to the price volatility, this increased when Finland joined, mainly due to an increase in jump size, and decreased when Denmark also joined Nord Pool. However, the price jump-intensity decreased both when Finland and Denmark joined the market. This means that a large electricity market integration in Scandinavia seems to reduce the probability of sudden price jumps. That is, the multinational electricity market integration in Scandinavia seems to have created a market that handles external shocks to supply and demand better than the separate national electricity markets previous did.
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Bibliographic InfoPaper provided by HUI Research in its series HUI Working Papers with number 16.
Length: 24 pages
Date of creation: 15 Apr 2008
Date of revision:
Publication status: Published as Lundgren, Jens, Jörgen Hellström and Niklas Rudholm, 'Multinational Electricity Market Integration and Electricity Price Dynamics' in Proceedings of the EEM 2008 - 5th International Conference on the European Electricity Market, 2008.
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Electricity price; market integration; jump risk; EGARCH; Exponential Autoregressive conditional Jump Intensity;
Find related papers by JEL classification:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
- L69 - Industrial Organization - - Industry Studies: Manufacturing - - - Other
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