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The Stability of Electricity Prices: Estimation and Inference of the Lyapunov Exponents

23 Pages Posted: 2 Oct 2007  

Mikael Bask

Bank of Finland - Research

Tung Liu

Ball State University - Department of Economics

Anna Widerberg

Göteborg University - Department of Economics and Statistics

Date Written: 2006

Abstract

The aim of this paper is to illustrate how the stability of a stochastic dynamic system is measured using the Lyapunov exponents. Specifically, we use a feedforward neural network to estimate these exponents as well as asymptotic results for this estimator to test for unstable (chaotic) dynamics. The data set used is spot electricity prices from the Nordic power exchange market. Nord Pool, and the dynamic system that generates these prices appears to be chaotic in one case.

Keywords: feedforward neural network, Nord Pool, Lyapunov exponents, spot electricity prices, stochastic dynamic system

JEL Classification: C12, C14, C22

Suggested Citation

Bask, Mikael and Liu, Tung and Widerberg, Anna, The Stability of Electricity Prices: Estimation and Inference of the Lyapunov Exponents (2006). Bank of Finland Research Discussion Paper No. 9/2006. Available at SSRN: https://ssrn.com/abstract=1018333 or http://dx.doi.org/10.2139/ssrn.1018333

Mikael Bask (Contact Author)

Bank of Finland - Research ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland

Tung Liu

Ball State University - Department of Economics ( email )

Muncie, IN 47306-0340
United States
765-285-5360 (Phone)
765-285-4313 (Fax)

Anna Widerberg

Göteborg University - Department of Economics and Statistics ( email )

Box 640
Vasagatan 1, E-building, floor 5 & 6
Göteborg, 40530
Sweden

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