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Convergence of European Spot Market Prices for Natural Gas? A Real-Time Analysis of Market Integration using the Kalman Filter

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  • Neumann, Anne
  • Siliverstovs, Boriss

Abstract

This paper provides a textbook example of integration between commodity markets, and the subsequent price convergence or absence thereof. We analyze price relations between spot markets for natural gas in Europe. We apply time-varying coefficient estimation applying the Kalman filter, to test whether price convergence between different locations is really taking place. Our results reveal that the construction of a pipeline between the UK and Zeebrugge (Belgium) has led to almost perfect price convergence between these locations; on the other hand, liberalization on the continent does not seem to be working yet.

Suggested Citation

  • Neumann, Anne & Siliverstovs, Boriss, 2005. "Convergence of European Spot Market Prices for Natural Gas? A Real-Time Analysis of Market Integration using the Kalman Filter," Dresden Discussion Paper Series in Economics 05/05, Technische Universität Dresden, Faculty of Business and Economics, Department of Economics.
  • Handle: RePEc:zbw:tuddps:0505
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    integration; convergence; econometrics; natural gas;

    JEL classification:

    • Q49 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Other
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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