Detecting the macro drivers in the Australian National Electricity Market asymmetric volatility co-movement

Chi Keung Lau, Michal Wojewodzki, Xingyu Dai and Qunwei Wang

Energy Economics, 2025, vol. 143, issue C

Abstract: This study investigated how macro variables (MV) influence electricity price volatility co-movement in Australian deregulated electricity markets between 1 January 2010 and 1 October 2022. We divided realised volatility (RV) into ‘good’ (GV) and ‘bad’ (BV) volatility. Next, we used the DCC-MIDAS-X model to observe the impact of 17 MVs and their six principal components on RV, GV, and BV. The results indicated that the industrial production index for mining, net electricity generation from wind, and the producer price index significantly drive the RV co-movement. Additionally, the high-frequency subcomponent of the Australian Energy Uncertainty Index exhibits the best driving performance for BV co-movement across markets. Furthermore, we documented the pivotal influence of MVs on long-run volatility correlations, with a noteworthy shift in dynamics post-2020. Our research highlighted the necessity of integrating MVs into risk-management frameworks in deregulated electricity markets. Thus, we provide critical and novel insights for policymakers and market participants to formulate policies and strategies for resilience against volatility.

Keywords: Australian NEM; Electricity prices; Marco variable; Volatility co-movement; DCC-MIDAS-X (search for similar items in EconPapers)
JEL-codes: Q41 Q50 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:143:y:2025:i:c:s0140988325000659

DOI: 10.1016/j.eneco.2025.108242

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