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Volatility spillovers between food and fuel markets: Do administrative regulations affect the transmission?

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  • An, Henry
  • Qiu, Feng
  • Rude, James

Abstract

The rapid growth of biofuel production has led to the food versus fuel dilemma, with studies showing that the use of crops as inputs drives up prices, volatility and volatility spillovers in food and fuel markets. Renewable identification numbers (RINs) are fuel credits that track and enforce compliance with U.S. renewable energy mandates, and may ameliorate price volatility disruptions and reduce spillovers. However, existing studies have largely ignored the relationship between RINs and price volatility. Using weekly spot price data over the period 2008–2018, we examine the impact of RINs on the volatility and market interdependence between the corn, ethanol, and oil markets. Through an asymmetric multivariate GARCH model, we find that the RIN market contributes to a reduction of volatility in the ethanol market, and also reduces volatility spillovers between corn and ethanol markets. Lastly, RINs weaken the market interdependence between ethanol and corn and ethanol and oil.

Suggested Citation

  • An, Henry & Qiu, Feng & Rude, James, 2021. "Volatility spillovers between food and fuel markets: Do administrative regulations affect the transmission?," Economic Modelling, Elsevier, vol. 102(C).
    • Handle: RePEc:eee:ecmode:v:102:y:2021:i:c:s0264999321001413
    DOI: 10.1016/j.econmod.2021.105552
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    Cited by:

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    2. Song, Feng & Cui, Jian & Yu, Yihua, 2022. "Dynamic volatility spillover effects between wind and solar power generations: Implications for hedging strategies and a sustainable power sector," Economic Modelling, Elsevier, vol. 116(C).

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    More about this item

    Keywords

    Biofuels; Ethanol; Price volatility spillovers; Renewable identification numbers;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • Q16 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - R&D; Agricultural Technology; Biofuels; Agricultural Extension Services
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy; Animal Welfare Policy
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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