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Wavelet quantile analysis of asymmetric pricing on the Swedish power market

Content Provider	Springer Nature Link
Author	Karlsson, Hyunjoo Kim Karlsson, Peter Månsson, Kristofer Sjölander, Pär
Copyright Year	2016
Abstract	In this article we investigate if the Swedish consumer prices for electricity are adjusted equally fast regardless of whether the NordPool power market prices are decreased or increased. Due to relatively moderate variations in the variables, we have applied quantile regression, since it is mainly the large changes (above the median) that essentially tend to have a considerable effect on the consumer prices. Moreover, in order to adjust for stochastic- and deterministic trends, autocorrelation, structural breaks as well as to measure APT effects in the short- and in the medium-run, we apply a wavelet decomposition approach. Our results show evidence that significantly positive asymmetric price transmission (APT) effects exist in this market. More specifically, in the short-run (based on the wavelet decomposition D1 for 1–2 months cycles), we find that that there is a higher propensity to rapidly and systematically increase the consumer prices subsequently to an increase in the NordPool market price, compared with the propensity to decrease their customers prices subsequently to a corresponding drop in the NordPool market prices. However, no significant APT effects were detected in the medium- or in the long-run (i.e. the asymmetric price transmission effects are observed only in the short-run). In summary, we could isolate significant APT effects in the short-run (1–2 months decomposition cycles), and for large changes in the dependent variable (percentiles = 0.9). Therefore, only large changes in the NordPool prices lead to feedback effects in the form of asymmetric price transmission effects. Our evidence supports the notion of firms’ downward stickiness of retail prices for maximizing profit, which are not expected to be found on a fully efficient market. Although our finding shows that the price inefficiency is short-lived, these large temporal inefficiencies are still costly for the consumers. It should be noted that blunt traditional powerless methods do not detect these APT effects, while our wavelet quantile methods are powerful and make a significant contribution in the literature by providing new empirical evidence.
Starting Page	249
Ending Page	260
Page Count	12
File Format	PDF
ISSN	03408744
Journal	Empirica
Volume Number	44
Issue Number	2
e-ISSN	15736911
Language	English
Publisher	Springer US
Publisher Date	2016-02-18
Publisher Place	New York
Access Restriction	One Nation One Subscription (ONOS)
Subject Keyword	APT Electricity market Wavelets Quantile regression European Integration International Economics Macroeconomics/Monetary Economics//Financial Economics Econometrics Industrial Organization Public Finance
Content Type	Text
Resource Type	Article
Subject	Geography, Planning and Development Development Economics and Econometrics

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