Capturing the impact of shocks on the electricity sector performance in the OECD

- We decompose the responses of electricity performance to structural reform shocks.
- We use dynamic panel VAR that allows endogeneity.
- The sample spans the period from 1975 to 2011 including 30 OECD countries.
- An independent regulatory scheme must be implemented in the electricity market.

This paper focuses on the responses of electricity performance to shocks arising from structural reform policies. With a dynamic panel vector autoregression (pVAR) model that allows endogeneity, we decompose the responses of electricity performance measures to shocks generated by the inclusion of structural reform indicators capturing the effect of competition, regulation and privatization. The sample spans the period from 1975 to 2011 including 30 OECD countries. The empirical findings do confirm that a robust independent regulatory scheme must be implemented in order to achieve a competitive electricity market. Finally the dynamic pVAR results using impulse response functions and variance decomposition analysis further support the validity of these results.