Skip to main content
Article
Forecasting Electricity Price Volatility with the Markov-Switching GARCH Model: Evidence from the Nordic Electric Power Market
Electric Power Systems Research (2013)
  • Atilla Cifter
Abstract
In this paper, electricity price behavior in the Nordic electric power market is forecasted with both the Markov-switching generalized autoregressive conditional heteroskedasticity (MS-GARCH) model and a set of different volatility models. The MS-GARCH model is estimated with two regimes, representing periods of low and high volatility. This study shows that electricity price volatility is not only highly volatile but also strongly regime-dependent. The empirical results show that the MS-GARCH model enables more accurate forecasting than the standard GARCH models, according to tail loss and reality check tests for one- and multi-step ahead forecasts. The results suggest that both the electricity generation companies and consumers of electricity could carry out better price forecasts by using the proposed MS-GARCH model.
Keywords
  • Electricity price volatility,
  • Markov-Switching GARCH model,
  • regime-dependent volatility,
  • Nordic power market.
Publication Date
September, 2013
Citation Information
Atilla Cifter. "Forecasting Electricity Price Volatility with the Markov-Switching GARCH Model: Evidence from the Nordic Electric Power Market" Electric Power Systems Research Vol. 102 (2013)
Available at: http://works.bepress.com/atilla_cifter/15/