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

Rafał Weron () and Michał Zator

No HSC/14/04, HSC Research Reports from Hugo Steinhaus Center, Wroclaw University of Technology

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, which may render it too complicated for practitioners. 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 C53 Q47 (search for similar items in EconPapers)
Pages: 9 pages
Date: 2014-03-20
New Economics Papers: this item is included in nep-ene and nep-for
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3) Track citations by RSS feed

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http://www.im.pwr.wroc.pl/~hugo/RePEc/wuu/wpaper/HSC_14_04.pdf Original version, 2014 (application/pdf)

Related works:
Journal Article: A note on using the Hodrick–Prescott filter in electricity markets (2015) Downloads
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