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

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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 > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series:	Veröffentlichungen des ZEW (Leibniz-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.