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Directional Congestion and Regime Switching in a Long Memory Model for Electricity Prices

Author

Listed:
  • Busato; Francesco
  • Bruno Chiarini
  • Vincenzo di Maro

    () (Department of Economics, University of Aarhus, Denmark)

Abstract

This paper generates high frequency data for the underground labor and the underground production using a theoretical general equilibrium model, over the sample 1970:01-1992:04 (32 years; 128 observations). We compare selected time series properties of the generated series with those of the corresponding series estimated with classical methodologies. The generated series for underground labor and underground production present a wider range and are more volatile than all other series estimated with classical methodologies. The analysis, next, suggests that the underground labor is pro-cyclical with respect to the GDP, that is lagging it by approximately one quarter, and that underground labor series generated from the theoretical model are highly persistent. Finally, the estimated correlation between the cyclical component of our generated-from-theory underground labor productivity and the actual series of aggregate GDP is negative (-0.34), while official yearly estimates present a positive (but very low) correlation with the cyclical component of GDP (0.12). This suggests that the underground sector has a positive impact over the productivity at the business cycle frequency, while it dampens productivity fluctuations at a lower frequency.

Suggested Citation

  • Busato; Francesco & Bruno Chiarini & Vincenzo di Maro, 2005. "Directional Congestion and Regime Switching in a Long Memory Model for Electricity Prices," Economics Working Papers 2005-19, Department of Economics and Business Economics, Aarhus University.
  • Handle: RePEc:aah:aarhec:2005-19
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    File URL: ftp://ftp.econ.au.dk/afn/wp/05/wp05_19.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Real Business Cycle Models; Underground Economy;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy

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