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Modeling electricity spot prices: Regime switching models with price-capped spike distributions

Author

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  • Janczura, Joanna
  • Weron, Rafal

Abstract

We calibrate Markov regime-switching (MRS) models to spot (log-)prices from two major power markets. We show that while the price-capped (or truncated) spike distributions do not give any advantage over the standard specification in case of moderately spiky markets (such as NEPOOL), they improve the fit and yield significantly different results in case of extremely spiky markets (such as the Australian NSW market).

Suggested Citation

  • Janczura, Joanna & Weron, Rafal, 2010. "Modeling electricity spot prices: Regime switching models with price-capped spike distributions," MPRA Paper 23296, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:23296
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    File URL: https://mpra.ub.uni-muenchen.de/23296/1/MPRA_paper_23296.pdf
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    References listed on IDEAS

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    1. Ben S. Bernanke & Mark Gertler, 2001. "Should Central Banks Respond to Movements in Asset Prices?," American Economic Review, American Economic Association, vol. 91(2), pages 253-257, May.
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    3. James H. Stock & Mark W. Watson, 2003. "Has the Business Cycle Changed and Why?," NBER Chapters,in: NBER Macroeconomics Annual 2002, Volume 17, pages 159-230 National Bureau of Economic Research, Inc.
    4. John B. Taylor, 1999. "A Historical Analysis of Monetary Policy Rules," NBER Chapters,in: Monetary Policy Rules, pages 319-348 National Bureau of Economic Research, Inc.
    5. Clarida, Richard & Gali, Jordi & Gertler, Mark, 1998. "Monetary policy rules in practice Some international evidence," European Economic Review, Elsevier, vol. 42(6), pages 1033-1067, June.
    6. Goodfriend, Marvin, 1987. "Interest rate smoothing and price level trend-stationarity," Journal of Monetary Economics, Elsevier, vol. 19(3), pages 335-348, May.
    7. Ben S. Bernanke & Mark Gertler, 1999. "Monetary policy and asset price volatility," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 77-128.
    8. Hall, Alastair R., 2004. "Generalized Method of Moments," OUP Catalogue, Oxford University Press, number 9780198775201.
    9. Gerhard Bry & Charlotte Boschan, 1971. "Cyclical Analysis of Time Series: Selected Procedures and Computer Programs," NBER Books, National Bureau of Economic Research, Inc, number bry_71-1, January.
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    Cited by:

    1. Nikolaidis, Alexandros I. & Milidonis, Andreas & Charalambous, Charalambos A., 2015. "Impact of fuel-dependent electricity retail charges on the value of net-metered PV applications in vertically integrated systems," Energy Policy, Elsevier, vol. 79(C), pages 150-160.

    More about this item

    Keywords

    Electricity spot price; Markov regime-switching model; Price spike; Price cap; Truncated distribution;

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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