Effects of the structural change on transaction costs between North America natural gas spot markets

ABSTRACT

Threshold cointegration between market pairs before and after the potential structural break associated with the shale gas revolution is examined. Pairwise transaction costs differ between the pre- and post-break periods. During the post-break period, five of seven pairwise transaction costs decrease, while the remaining two pair-wise transaction costs increase relative to the pre-break period. Alterations in natural gas flows as the result of the shale gas revolution partially explain the changes in transaction costs.

KEYWORDS:

• Threshold cointegration
• transaction costs
• natural gas
• structural changes

JEL CLASSIFICATION:

• C22
• Q41

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Balke and Fomby also propose two steps of the threshold cointegration test. The difference between tests of Balke and Fomby (1997) and Park, Mjelde, and Bessler (2007) is that the first step of Balke and Fomby’s (1997) test is under the univariate setting while Park, Mjelde, and Bessler (2007) is under the multivariate setting.