This paper investigates price volatility and spillovers in the Nordic electricity wholesale markets. We use the Time-Varying Parameter Vector Autoregressive (TVP-VAR), Rolling Window-based VAR (RW-VAR), and high dimensional VAR with common factors (VAR-CF) methods and analyze the integration dynamics among these markets and impact of carbon prices on volatility spillovers. We use 107,352 hourly price data from January 2010 to March 2022. The novelty of this research is four-fold. First, we adopt a connectedness approach to explore volatility interactions among the four Nordic markets, contributing to the scarce literature on volatility in this market. Second, we segment the Norwegian market into southern and northern regions, revealing differences in volatility spillover patterns. Third, we investigate the effect of carbon prices on volatility spillovers and market dynamics. Last, we show significant contribution of covariances to interdependence among markets. We find significant connectedness between the Nordic markets, with an average Total Connectedness Index of between 50% (with a system of variance) and 90% (with a system of both variance and covariance). Sweden is the sole net volatility spillover transmitter, while Denmark experiences the largest shocks from the system. We further find that carbon prices exert a 5% significant impact on the volatility spillover index.

中文翻译：

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北欧批发电力市场的波动溢出和碳价格

本文研究了北欧电力批发市场的价格波动和溢出效应。我们使用时变参数向量自回归 (TVP-VAR)、基于滚动窗口的 VAR (RW-VAR) 和具有公因子的高维 VAR (VAR-CF) 方法，并分析这些市场之间的整合动态以及碳价格对波动性溢出的影响。我们使用 2010 年 1 月至 2022 年 3 月的 107,352 小时价格数据。这项研究的新颖性有四倍。首先，我们采用连通性方法来探索四个北欧市场之间的波动性相互作用，为该市场波动性的稀缺文献做出贡献。其次，我们将挪威市场分为南部和北部地区，揭示了波动溢出模式的差异。第三，我们研究了碳价格对波动溢出和市场动态的影响。最后，我们展示了协方差对市场之间相互依赖的显着贡献。我们发现北欧市场之间存在显着的连通性，平均总连通性指数在 50%（采用方差系统）和 90%（采用方差和协方差系统）之间。瑞典是唯一的净波动溢出传播者，而丹麦则受到该系统的最大冲击。我们进一步发现碳价格对波动溢出指数有5%的显着影响。