Shocked: Electricity Price Volatility Spillovers in Europe
IMF Working Papers, January 10, 2025
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- Shocked: Electricity Price Volatility Spillovers in Europe
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Bibliographic details
- Authors: Serhan Cevik, Yueshu Zhao
- Published: January 10, 2025
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400296901.001
Overview and scope
- Investigates volatility spillovers across 24 countries in the European Union (EU) during the period 2014–2024 using high-frequency data.
- Develops both a static and a dynamic assessment of spillover effects and directional decomposition between individual countries.
- Implements an augmented gravity model of bilateral volatility spillovers across power markets in the EU.
- Publication details: IMF Working Paper No. 2025/007, Issue 007, Volume 2025, Pages: 22, DOI: https://doi.org/10.5089/9798400296901.001, ISBN: 9798400296901.
- Authors and date: By Serhan Cevik, Yueshu Zhao — January 10, 2025.
Key empirical findings
- About 73 percent of the forecast error variation is explained by cross-variance shares.
- Only 27 percent of the forecast error variation can be attributed to shocks within each country.
- Cross-border volatility spillovers dominate the behavior in national electricity markets in Europe.
- The dominance of cross-border spillovers has grown over time (2014–2024).
Methodology and analytical approach
- Uses high-frequency electricity market data covering 24 EU countries for 2014–2024.
- Employs both static and dynamic spillover assessments with directional decomposition to identify transmission between individual countries.
- Augmented gravity model applied to bilateral volatility spillovers across power markets in the EU.
Policy implications and recommendations
- Findings provide important insights for policymakers and regulators on:
- Greater integration of electricity markets.
- Infrastructure improvements to facilitate cross-border risk transmission management.
- Policies that would help with the transition to low-carbon sources of power generation.
- Measures to strengthen energy security in Europe.
Subject areas and keywords
- Subject: Commodities, Econometric analysis, Electricity, Environment, Financial sector policy and analysis, Gravity models, Renewable energy, Spillovers.
- Keywords: Electricity, electricity market, Electricity market reform, Electricity prices, Europe, Gravity model, Gravity models, markets in the EU, Renewable energy, spillover effect, Spillovers, Volatility, volatility spillover.
IMF Working Papers — Serhan Cevik and Yueshu Zhao (January 10, 2025), Working Paper No. 2025/007.
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