Is the price cap for gas useful? Evidence from European countries

Since Russia’s invasion of Ukraine, many countries have pledged to end or restrict their oil and gas imports to curtail Moscow’s revenues and hinder its war effort. Thus, the European ministers agreed to trigger a cap on the gas price. To detect the importance of the price cap for gas, we provide a mixture representation for the gas price to detect the presence of outliers made by a truncated normal distribution and a uniform one. We focus our analysis on a unique dataset of different commodity prices for Germany and Italy, which are major Russian gas importers by exploiting the response of the different commodities to a gas shock through a Bayesian vector autoregressive (VAR) model. As a result, including a lower gas price cap smooths the impact of a gas shock on electricity prices, while not considering a price cap will increase exponentially this impact. Regarding the other commodities, gas shocks matter in the short and long run when a price cap is not considered.

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Publication Details

Journal
The Annals of Applied Statistics
Published
2025-05-28
DOI
https://doi.org/10.1214/25-aoas2016
Primary Topic
Market Dynamics and Volatility
Type
article
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article

Is the price cap for gas useful? Evidence from European countries

Francesco Ravazzolo, Luca Rossini
The Annals of Applied Statistics
Market Dynamics and Volatility
article

Is the price cap for gas useful? Evidence from European countries

Francesco Ravazzolo, Luca Rossini
article en

Abstract

Since Russia’s invasion of Ukraine, many countries have pledged to end or restrict their oil and gas imports to curtail Moscow’s revenues and hinder its war effort. Thus, the European ministers agreed to trigger a cap on the gas price. To detect the importance of the price cap for gas, we provide a mixture representation for the gas price to detect the presence of outliers made by a truncated normal distribution and a uniform one. We focus our analysis on a unique dataset of different commodity prices for Germany and Italy, which are major Russian gas importers by exploiting the response of the different commodities to a gas shock through a Bayesian vector autoregressive (VAR) model. As a result, including a lower gas price cap smooths the impact of a gas shock on electricity prices, while not considering a price cap will increase exponentially this impact. Regarding the other commodities, gas shocks matter in the short and long run when a price cap is not considered.

The Annals of Applied StatisticsVol. 19(2)
Free University of Bozen-Bolzano (IT), Fondazione Eni Enrico Mattei (IT)
Openalex Percentile: Top 83%
Market Dynamics and Volatility
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