
EUAs and CERs : Vector autoregression, impulse response function and cointegration analysis
Chevallier, Julien (2010), EUAs and CERs : Vector autoregression, impulse response function and cointegration analysis, Economics Bulletin, 30, 1, p. 558-576
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Type
Article accepté pour publication ou publiéDate
2010-01Journal name
Economics BulletinVolume
30Number
1Publisher
Economics Bulletin
Pages
558-576
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Chevallier, JulienAbstract (EN)
EUAs are European Union Allowances traded on the EU Emissions Trading Scheme (EU ETS), while Certified Emissions Reductions (CERs) arise from the Clean Development Mechanism under the Kyoto Protocol. These emissions assets attract an increasing attention among brokers, investors and operators on emissions markets, because they may be both used for compliance under the EU ETS (up to fixed limits). This paper proposes a statistical analysis of the inter-relationships between EUA and CER price series, by using vector autoregression, impulse response function, and cointegration analysis on daily data from March 9, 2007 to January 14, 2010. The central results show that EUAs and CERs affect each other significantly through the vector autoregression model, and react quite rapidly to shocks on each other through the impulse response function analysis. Most importantly, both price series are found to be cointegrated, with EUAs leading the price discovery process in the long-term through the vector error correction mechanism.Subjects / Keywords
EUA; CER; Vector Autoregression; Impulse Response Function; Cointegration; Vector Error Correction Model; EU ETS; Price DiscoveryRelated items
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