Price and volatility dynamics between electricity and fuel costs: Some evidence for Spain
The purpose of this study is to investigate the causal linkages between the Spanish electricity, Brent crude oil and Zeebrugge (Belgium) natural gas 1-month-ahead forward prices. Following Lütkepohl et al. (2004), we control for the presence of a structural change in the series and then we use the Johansen cointegration test and a vector error correction model (VECM) to embrace the analysis. Additionally, a multivariate generalized autoregressive conditional heteroskedastic (GARCH) model is applied to explore volatility interactions between the three markets involved in the study. Our findings reveal that Brent crude oil and Zeebrugge natural gas forward prices play a prominent role in the Spanish electricity price formation process. Furthermore, causation, both in price and volatility, runs from Brent crude oil and natural gas forward markets to the Spanish electricity forward market. These results are of practical importance for both the wholesale and retail markets' participants as well as the regulator through the established link between the forward contracts' price and the Spanish tariff of last resort paid by more than 23million of customers.
References listed on IDEAS
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.:
- Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(01), pages 122-150, February.
- Javier Estrada & Ole Fugleberg, 1989. "Price Elasticities of Natural Gas Demand in France and West Germany," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 77-90.
- Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
- Zivot, Eric & Andrews, Donald W K, 2002.
"Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 20(1), pages 25-44, January.
- Zivot, Eric & Andrews, Donald W K, 1992. "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 251-270, July.
- Eric Zivot & Donald W.K. Andrews, 1990. "Further Evidence on the Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Cowles Foundation Discussion Papers 944, Cowles Foundation for Research in Economics, Yale University.
- Tom Doan, "undated". "ZIVOT: RATS procedure to perform Zivot-Andrews Unit Root Test," Statistical Software Components RTS00236, Boston College Department of Economics.
- Mohammadi, Hassan, 2009. "Electricity prices and fuel costs: Long-run relations and short-run dynamics," Energy Economics, Elsevier, vol. 31(3), pages 503-509, May.
- Sen, Amit, 2003. "On Unit-Root Tests When the Alternative Is a Trend-Break Stationary Process," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(1), pages 174-184, January.
- Apostolos Serletis & John Herbert, 2007. "The Message in North American Energy Prices," World Scientific Book Chapters,in: Quantitative And Empirical Analysis Of Energy Markets, chapter 13, pages 156-171 World Scientific Publishing Co. Pte. Ltd..
- Serletis, Apostolos & Herbert, John, 1999. "The message in North American energy prices," Energy Economics, Elsevier, vol. 21(5), pages 471-483, October.
- Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, vol. 57(6), pages 1361-1401, November.
- Perron, P, 1988. "The Great Crash, The Oil Price Shock And The Unit Root Hypothesis," Papers 338, Princeton, Department of Economics - Econometric Research Program.
- Carsten Trenkler, 2003. "A new set of critical values for systems cointegration tests with a prior adjustment for deterministic terms," Economics Bulletin, AccessEcon, vol. 3(11), pages 1-9.
- Casten TRENKLER, 2003. "A New Set of Critical Values for Systems Cointegration Tests with a Prior Adjustment for Deterministic Terms," Economics Working Papers ECO2003/07, European University Institute.
- Soderholm, Patrik, 2000. "Fuel flexibility in the West European power sector," Resources Policy, Elsevier, vol. 26(3), pages 157-170, September.
- Granger, C. W. J., 1988. "Some recent development in a concept of causality," Journal of Econometrics, Elsevier, vol. 39(1-2), pages 199-211.
- Apostolos Serletis & Akbar Shahmoradi, 2007. "Measuring and Testing Natural Gas and Electricity Markets Volatility: Evidence from Alberta's Deregulated Markets," World Scientific Book Chapters,in: Quantitative And Empirical Analysis Of Energy Markets, chapter 16, pages 205-220 World Scientific Publishing Co. Pte. Ltd..
- Serletis Apostolos & Shahmoradi Akbar, 2006. "Measuring and Testing Natural Gas and Electricity Markets Volatility: Evidence from Alberta's Deregulated Markets," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 10(3), pages 1-20, September.
- Glosten, Lawrence R & Jagannathan, Ravi & Runkle, David E, 1993. " On the Relation between the Expected Value and the Volatility of the Nominal Excess Return on Stocks," Journal of Finance, American Finance Association, vol. 48(5), pages 1779-1801, December.
- Lawrence R. Glosten & Ravi Jagannathan & David E. Runkle, 1993. "On the relation between the expected value and the volatility of the nominal excess return on stocks," Staff Report 157, Federal Reserve Bank of Minneapolis.
- Mjelde, James W. & Bessler, David A., 2009. "Market integration among electricity markets and their major fuel source markets," Energy Economics, Elsevier, vol. 31(3), pages 482-491, May.
- Kroner, Kenneth F & Ng, Victor K, 1998. "Modeling Asymmetric Comovements of Asset Returns," Review of Financial Studies, Society for Financial Studies, vol. 11(4), pages 817-844.
- Bruno Bosco & Lucia Parisio & Matteo Pelagatti & Fabio Baldi, 2010. "Long-run relations in european electricity prices," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(5), pages 805-832.
- repec:ebl:ecbull:v:3:y:2003:i:11:p:1-9 is not listed on IDEAS
- Helmut Lütkepohl & Pentti Saikkonen & Carsten Trenkler, 2004. "Testing for the Cointegrating Rank of a VAR Process with Level Shift at Unknown Time," Econometrica, Econometric Society, vol. 72(2), pages 647-662, 03.
- Lütkepohl, Helmut & Saikkonen, Pentti & Trenkler, Carsten, 2001. "Testing for the cointegrating rank of a VAR process with level shift at unknown time," SFB 373 Discussion Papers 2001,63, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
- Ewing, Bradley T. & Malik, Farooq & Ozfidan, Ozkan, 2002. "Volatility transmission in the oil and natural gas markets," Energy Economics, Elsevier, vol. 24(6), pages 525-538, November.
- Muñoz, M. Pilar & Dickey, David A., 2009. "Are electricity prices affected by the US dollar to Euro exchange rate? The Spanish case," Energy Economics, Elsevier, vol. 31(6), pages 857-866, November.
- LaCasse, Chantale & Wininger, Thomas, 2007. "Maryland versus New Jersey: Is There a "Best" Competitive Bid Process?," The Electricity Journal, Elsevier, vol. 20(3), pages 46-59, April.
- Frank Asche & Petter Osmundsen & Maria Sandsmark, 2006. "The UK Market for Natural Gas, Oil and Electricity: Are the Prices Decoupled?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 27-40.
- Kearney, Colm & Patton, Andrew J, 2000. "Multivariate GARCH Modeling of Exchange Rate Volatility Transmission in the European Monetary System," The Financial Review, Eastern Finance Association, vol. 35(1), pages 29-48, February. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:34:y:2012:i:6:p:2058-2065. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)
If references are entirely missing, you can add them using this form.