Seasonal dynamic factor analysis and bootstrap inference: application to electricity market forecasting

Carolina García-Martos, Julio Rodríguez and María Jesús Sánchez

DES - Working Papers. Statistics and Econometrics. WS from Universidad Carlos III de Madrid. Departamento de Estadística

Abstract: Year-ahead forecasting of electricity prices is an important issue in the current context of electricity markets. Nevertheless, only one-day-ahead forecasting is commonly tackled up in previous published works. Moreover, methodology developed for the short-term does not work properly for long-term forecasting. In this paper we provide a seasonal extension of the Non-Stationary Dynamic Factor Analysis, to deal with the interesting problem (both from the economic and engineering point of view) of long term forecasting of electricity prices. Seasonal Dynamic Factor Analysis (SeaDFA) allows to deal with dimensionality reduction in vectors of time series, in such a way that extracts common and specific components. Furthermore, common factors are able to capture not only regular dynamics (stationary or not) but also seasonal one, by means of common factors following a multiplicative seasonal VARIMA(p,d,q)×(P,D,Q)s model. Besides, a bootstrap procedure is proposed to be able to make inference on all the parameters involved in the model. A bootstrap scheme developed for forecasting includes uncertainty due to parameter estimation, allowing to enhance the coverage of forecast confidence intervals. Concerning the innovative and challenging application provided, bootstrap procedure developed allows to calculate not only point forecasts but also forecasting intervals for electricity prices.

Keywords: Dynamic; factor; analysis; Bootstrap; Forecasting; Confidence; intervals (search for similar items in EconPapers)
JEL-codes: C32 C53 (search for similar items in EconPapers)
Date: 2008-03
New Economics Papers: this item is included in nep-ecm, nep-ene, nep-ets, nep-for and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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