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

  • Bask , Mikael

    ()

    (Bank of Finland Research)

  • Liu , Tung

    ()

    (Department of Economics, Ball State University)

  • Widerberg , Anna

    ()

    (Department of Economics)

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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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
Contact details of provider: Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
Web page: http://www.suomenpankki.fi/en/

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  1. 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.
  2. Potter, Simon M., 2000. "Nonlinear impulse response functions," Journal of Economic Dynamics and Control, Elsevier, vol. 24(10), pages 1425-1446, September.
  3. Shintani, Mototsugu & Linton, Oliver, 2004. "Nonparametric neural network estimation of Lyapunov exponents and a direct test for chaos," Journal of Econometrics, Elsevier, vol. 120(1), pages 1-33, May.
  4. Dechert, W D & Gencay, R, 1992. "Lyapunov Exponents as a Nonparametric Diagnostic for Stability Analysis," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(S), pages S41-60, Suppl. De.
  5. 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.
  6. Kuan, Chung-Ming & Liu, Tung, 1995. "Forecasting Exchange Rates Using Feedforward and Recurrent Neural Networks," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(4), pages 347-64, Oct.-Dec..
  7. Andrews, Donald W K, 1991. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Econometrica, Econometric Society, vol. 59(3), pages 817-58, May.
  8. Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, vol. 74(1), pages 119-147, September.
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