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Time–frequency dynamics of biofuel–fuel–food system

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  • Vacha, Lukas
  • Janda, Karel
  • Kristoufek, Ladislav
  • Zilberman, David

Abstract

For the first time, we apply the wavelet coherence methodology on biofuels (ethanol and biodiesel) and a wide range of related commodities (gasoline, diesel, crude oil, corn, wheat, soybeans, sugarcane and rapeseed oil). This way, we are able to investigate dynamics of correlations in time and across scales (frequencies) with a model-free approach. We show that correlations indeed vary in time and across frequencies. We find two highly correlated pairs which are strongly connected at low frequencies – ethanol with corn and biodiesel with German diesel – during almost the whole analyzed period (2003–2011). Structure of correlations remarkably changes during the food crisis — higher frequencies become important for both mentioned pairs. This implies that during stable periods, ethanol is correlated with corn and biodiesel is correlated with German diesel mainly at low frequencies so that they follow a common long-term trend. However, in the crisis periods, ethanol (biodiesel) is led by corn (German diesel) even at high frequencies (low scales), which implies that the biofuels prices react more rapidly to the changes in their producing factors.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 40 (2013)
Issue (Month): C ()
Pages: 233-241

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Handle: RePEc:eee:eneeco:v:40:y:2013:i:c:p:233-241

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Web page: http://www.elsevier.com/locate/eneco

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Keywords: Biofuels; Prices; Correlations; Wavelet coherence;

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References

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  1. Lukas Vacha & Jozef Barunik, 2012. "Co-movement of energy commodities revisited: Evidence from wavelet coherence analysis," Papers 1201.4776, arXiv.org.
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Citations

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Cited by:
  1. Janda, Karel & Krska, Stepan & Prusa, Jan, 2014. "Odhad nákladů na podporu české fotovoltaické energie
    [The Estimation of the Cost of Promotion of the Czech Photovoltaic Energy]
    ," MPRA Paper 54108, University Library of Munich, Germany.
  2. Bastianin, Andrea & Galeotti, Marzio & Manera, Matteo, 2014. "Causality and predictability in distribution: The ethanol–food price relation revisited," Energy Economics, Elsevier, vol. 42(C), pages 152-160.
  3. Ladislav Kristoufek, 2013. "Fractal Markets Hypothesis and the Global Financial Crisis: Wavelet Power Evidence," Papers 1310.1446, arXiv.org.
  4. Chrz, Stepan & Hruby, Zdenek & Janda, Karel & Kristoufek, Ladislav, 2013. "Provazanost trhu potravin, biopaliv a fosilnich paliv
    [Interconnections within food, biofuel, and fossil fuel markets]
    ," MPRA Paper 43958, University Library of Munich, Germany.
  5. Trujillo-Barrera, Andres & Pennings, Joost M.E., 2013. "Energy and Food Commodity Prices Linkage: An Examination with Mixed-Frequency Data," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150465, Agricultural and Applied Economics Association.

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