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


Lutz, Benjamin Johannes ; Pigorsch, Uta ; Rotfuß, Waldemar


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URL: https://ub-madoc.bib.uni-mannheim.de/33002
URN: urn:nbn:de:bsz:180-madoc-330020
Document Type: Working paper
Year of publication: 2013
The title of a journal, publication series: ZEW Discussion Papers
Volume: 13-001
Place of publication: Mannheim
Publication language: English
Institution: Sonstige Einrichtungen > Zentrum für Europ. Wirtschaftsforschung (ZEW)
MADOC publication series: Veröffentlichungen des ZEW (Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: C22 , C58 , G13 , Q50,
Subject headings (SWD): Emissionsrechte , Preis , Emissionshandel , Energiepreis , Konjunktur , Wetter , EU-Staaten
Keywords (English): EU ETS , EUA price fundamentals , Markov regime-switching
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 and 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.

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