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Did biofuel production strengthen the comovements between food and fuel prices? Evidence from ethanol-related markets in the United States

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  • Tanaka, Tetsuji
  • Guo, Jin
  • Wang, Xiufang

Abstract

U.S. ethanol production from corn rapidly grew since the enactment of the Energy Policy Act of 2005 and the Energy Independence Act of 2007. Although many economists analyzed the relationships between food and fuel prices, the mechanisms between the price comovements and ethanol production have not yet been investigated with numerical models. We test the hypothesis that ethanol production strengthens the linkages between food and energy prices using the dynamic conditional correlations (DCC) -mixed-data sampling (MIDAS) model and wavelet coherence approach over the sample period 2005–2020. To the best of our knowledge, this research is the first to apply the combination of the DCC-MIDAS and wavelet methodologies to address the relevant issues. Our primary findings are as follows (1) the DCCs for the three pairs (i.e., ethanol-corn, crude oil-corn, and ethanol-crude oil): exhibited positive linkages in most of the sample period. (2) The ethanol-corn DCC positively and negatively affects ethanol production in the short and long run. (3) Ethanol production negatively and positively influenced the crude oil-corn DCC in the short and long term. The results suggest that U.S. biofuel policies foster the food-energy long-run linkages and enhance the probability of concurrent food and energy crises.

Suggested Citation

  • Tanaka, Tetsuji & Guo, Jin & Wang, Xiufang, 2023. "Did biofuel production strengthen the comovements between food and fuel prices? Evidence from ethanol-related markets in the United States," Renewable Energy, Elsevier, vol. 217(C).
    • Handle: RePEc:eee:renene:v:217:y:2023:i:c:s096014812301056x
    DOI: 10.1016/j.renene.2023.119142
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    Keywords

    Biofuel; Ethanol; Crude oil; Corn; Dynamic conditional correlation; Wavelet transform;
    All these keywords.

    JEL classification:

    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics

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