Nonlinearity in cap-and-trade systems: The EUA price and its fundamentals

Benjamin Lutz, Uta Pigorsch and Waldemar Rotfuß ()

No 13-001, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: In this paper we examine the nonlinear relation between the EUA price and its fundamentals, such as energy prices, macroeconomic risk factors and weather conditions. By estimating a Markov regime-switching model, we find that the relation between the EUA price and its fundamentals varies over time. In particular, we are able to identify a low and a high volatility regime, both showing a strong impact of the fundamentals on the EUA price. The high volatility regime is predominant during the recession of 2008 and 2009 - a time period in which the actual emissions sharply decreased due to the economic crisis.

Keywords: EU ETS; EUA Price Fundamentals; Markov Regime-Switching (search for similar items in EconPapers)
JEL-codes: C22 C58 G13 Q50 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-ene and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (92)

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Related works:
Journal Article: Nonlinearity in cap-and-trade systems: The EUA price and its fundamentals (2013)
Working Paper: Nonlinearity in cap-and-trade systems: The EUA price and its fundamentals (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:13001

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