"Interest Rate Trap", or: Why Does the Central Bank Keep the Policy Rate too Low for too Long Time?

Jin Cao () and Gerhard Illing

No 3794, CESifo Working Paper Series from CESifo

Abstract: This paper is concerned with carbon price volatility and the underlying causes of large price movements in the European emissions trading market. Based on the application of a combined jump-GARCH model the behavior of EUA prices is characterized. The jump-GARCH model explains the unsteady carbon price movement well and, moreover, shows that between 40 and 60 percent of the carbon price variance are triggered by jumps. Information regarding EUA supply and news from international carbon markets are identified as important drivers of these price spikes. These results can lead regulators the way if smoother carbon prices are desired.

Keywords: emission allowance prices; GARCH; jumps; jump-induced variance (search for similar items in EconPapers)
JEL-codes: C22 Q50 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (4)

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Working Paper: "Interest rate trap", or: Why does the central bank keep the policy rate too low for too long time? (2011)
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