Why do electricity prices jump? Empirical evidence from the Nordic electricity market
The paper empirically explores the possible causes behind electricity price jumps in the Nordic electricity market, Nord Pool. A time-series model (a mixed GARCH–EARJI jump model) capturing the common statistical features of electricity prices is used to identify price jumps. By the model, a categorical variable is defined distinguishing no, positive and negative jumps. The causes for the jumps are then explored through the use of ordered probit models in a second stage. The empirical results indicate that the structure of the market plays an important role in whether shocks in the demand and supply for electricity translate into price jumps.
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