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Market Structure and the Stability and Volatility of Electricity Prices

  • Bask, Mikael


    (Department of Economics, Stanford University)

  • Widerberg, Anna


    (Department of Economics, School of Business, Economics and Law, Göteborg University)

By using a novel approach in this paper,(lambda,sigma²)-analysis, we have found that electricity prices most of the time have increased in stability and decreased in volatility when the Nordic power market has expanded and the degree of competition has increased. That electricity prices at Nord Pool have been generated by a stochastic dynamic system that most often has become more stable during the step-wise integration of the Nordic power market means that this market is less sensitive to shocks after the integration process than it was before this process. This is good news.

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Paper provided by University of Gothenburg, Department of Economics in its series Working Papers in Economics with number 327.

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Length: 40 pages
Date of creation: 06 Nov 2008
Date of revision:
Handle: RePEc:hhs:gunwpe:0327
Contact details of provider: Postal: Department of Economics, School of Business, Economics and Law, University of Gothenburg, Box 640, SE 405 30 GÖTEBORG, Sweden
Phone: 031-773 10 00
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  1. Bask , Mikael & Liu , Tung & Widerberg , Anna, 2006. "The stability of electricity prices: estimation and inference of the Lyapunov exponents," Research Discussion Papers 9/2006, Bank of Finland.
  2. Mototsugu Shintani, 2006. "A nonparametric measure of convergence towards purchasing power parity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(5), pages 589-604.
  3. Hjalmarsson, Erik, 2000. "Nord Pool: A Power Market Without Market Power," Working Papers in Economics 28, University of Gothenburg, Department of Economics.
  4. Newbery, David M, 1984. "Commodity Price Stabilization in Imperfect or Cartelized Markets," Econometrica, Econometric Society, vol. 52(3), pages 563-78, May.
  5. Simon M. Potter, 1999. "Nonlinear impulse response functions," Staff Reports 65, Federal Reserve Bank of New York.
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  7. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
  8. Thille, Henry, 2006. "Inventories, market structure, and price volatility," Journal of Economic Dynamics and Control, Elsevier, vol. 30(7), pages 1081-1104, July.
  9. Bask Mikael & de Luna Xavier, 2002. "Characterizing the Degree of Stability of Non-linear Dynamic Models," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 6(1), pages 1-19, April.
  10. Gencay Ramazan & Dechert W. Davis, 1996. "The Identification of Spurious Lyapunov Exponents in Jacobian Algorithms," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 1(3), pages 1-12, October.
  11. Dmitry V. Vedenov & Mario J. Miranda, 2001. "Numerical solution of dynamic oligopoly games with capital investment," Economic Theory, Springer, vol. 18(1), pages 237-261.
  12. Simón Sosvilla-Rivero & Fernando Fernández-Rodriguez & Julián Andrada-Félix, 2005. "Testing chaotic dynamics via Lyapunov exponents," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(7), pages 911-930.
  13. Deaton, A. & Laroque, G., 1989. "On The Behavior Of Commodity Prices," Papers 145, Princeton, Woodrow Wilson School - Public and International Affairs.
  14. Oliver Linton & Mototsugu Shintani, 2003. "Nonparametric Neural Network Estimation of Lyapunov Exponents and a Direct Test for Chaos," STICERD - Econometrics Paper Series 455, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
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  16. Williams,Jeffrey C. & Wright,Brian D., 2005. "Storage and Commodity Markets," Cambridge Books, Cambridge University Press, number 9780521023399.
  17. Chris Brooks & Simon Burke, 2003. "Information criteria for GARCH model selection," The European Journal of Finance, Taylor & Francis Journals, vol. 9(6), pages 557-580.
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  20. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-70, March.
  21. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
  22. Deaton, Angus & Laroque, Guy, 1996. "Competitive Storage and Commodity Price Dynamics," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 896-923, October.
  23. Mikael Bask & Jens Lundgren & Niklas Rudholm, 2009. "Market power in the expanding Nordic power market," Applied Economics, Taylor & Francis Journals, vol. 43(9), pages 1035-1043.
  24. Lundgren, Jens & Hellström, Jörgen & Rudholm, Niklas, 2008. "Multinational Electricity Market Integration and Electricity Price Dynamics," HUI Working Papers 16, HUI Research.
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