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A note on using the Hodrick–Prescott filter in electricity markets

Rafał Weron () and Michał Zator

Energy Economics, 2015, vol. 48, issue C, 1-6

Abstract: Recently, Nowotarski et al. (2013) have found that wavelet-based models for the long-term seasonal component (LTSC) are not only better in extracting the LTSC from a series of spot electricity prices but also significantly more accurate in terms of forecasting these prices up to a year ahead than the commonly used monthly dummies and sine-based models. However, a clear disadvantage of the wavelet-based approach is the increased complexity of the technique, as compared to the other two classes of LTSC models, and the resulting need for dedicated numerical software, which may not be readily available to practitioners in their work environments. To facilitate this problem, we propose here a much simpler, yet equally powerful method for identifying the LTSC in electricity spot price series. It makes use of the Hodrick–Prescott (HP) filter, a widely-recognized tool in macroeconomics.

Keywords: Hodrick–Prescott filter; Electricity spot price; Long-term seasonal component; Robust modeling (search for similar items in EconPapers)
JEL-codes: C14 C51 C52 C53 C63 Q47 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (8) Track citations by RSS feed

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