Gas Price Caps and Volatility Transmission in Commodity and Equity Markets
95 Pages Posted: 12 Feb 2024
Date Written: January 14, 2024
Abstract
We study the impact of price cap mechanisms in the Natural Gas Title Transfer Facility on the commodity and equity markets. Our key findings are as follows: (i) a cap rule based on fixed price mechanism lowers the price consistently in most of the markets with no effect on volatility, thus acting as a possible short-run policy measure; (ii) the gas price cap mechanism adopted by the European Commission and currently in force seems to play a minor role in containing potential price spikes and has no significant impact in mitigating price volatility; (iii) a mechanism directly linked to the gas price volatility seems to perform better in containing gas prices and taming volatility spillover effects in commodity and equity markets. Our approach provides a way to assess ex-ante the market impacts of alternative policy interventions.
Keywords: Gas Price, Price-cap mechanism, Volatility spillover, Commodity prices, Equity markets
JEL Classification: G17, Q02, L78
Suggested Citation: Suggested Citation