On the Existence of a Unit Root in the Time Series of Monthly Electricity Prices in Colombia

Elkin Castaño and Jorge Sierra

Lecturas de Economía, 2012, issue 76, 259-291

Abstract: Usually, the time series of electricity prices in different markets show structural changes due to economic conditions related to supply, demand or specific market rules. While some of the proposals for modeling these series are based on mean reversion models inspired by the financial literature (Philipovic, 1998), its jumps and structural changes have evidenced the existence of regimes with different means and variances (Huisman, 2003). In Colombia, these series seem to show an overall growing pattern. This article seeks to find evidence of whether this growing pattern is due to the presence of a purely deterministic trend; or if there is a unit root, implying the existence of a stochastic trend; or if the series is generated by a stationary process around various changes of level, which could have been caused by various exogenous events such as the weather phenomena of El Niño and La Niña and the resolutions of the Comisión de Regulación de Energía y Gas in the country. The results are in favor of stationary process around multiple level changes, and highlight the importance of having information. about the events that occurred in the evolution of the process.

Keywords: Level shift; deterministic components; unit root (search for similar items in EconPapers)
JEL-codes: C15 C22 C52 (search for similar items in EconPapers)
Date: 2012
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