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What do international energy prices have in common after taking into account the key drivers?

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2020-12-18
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Differences across international energy prices are driven by many factors, but what do energy prices have in common? We analyze global and group-specific co-movements in the energy market by means of a Dynamic Factor Model with Cluster Structure. A new extension of the model is included which allows to evaluate the effect of macroeconomic variables which are country-specific over energy prices. A Monte Carlo experiment is carried out in order to test the estimation performance of the proposed extension. In a Big Data scenario of 30 countries and 12 industrial sectors we find that the co-movements between energy prices are related to groups of countries and may be classified within four groups. The connections within groups may be explained by high prices of a specific fuel type.
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Energy Prices, Dynamic Factor Model, Clustering, Penalized Regression
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