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Do bio-fuel policies lead to speculative behavior?

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  • Chia-Hsing Huang
  • Liang-Chun Ho
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    Abstract

    Purpose – This paper seeks to study the impact of bio-fuel policies on oil and food futures prices from December 6, 2004 to August 1, 2008. Design/methodology/approach – The daily closing prices of brent crude oil, light sweet crude oil, corn, wheat, soybeans, and rough rice futures from December 6, 2004 to August 1, 2008 are used in this research. The vector error correction model is applied in order to study the impact of bio-fuel policies on oil and agricultural futures prices. Findings – Unit root and cointegration tests show that the brent crude oil, light sweet crude oil, wheat, corn, soybeans, and rough rice futures are stationary and have a long-run equilibrium relationship. Granger causality tests of the four periods shows that the causality relationship between oil futures and food futures changes over time. The first period result shows many Granger causes on several variables at a 5 percent significance level. The second period has more Granger causes at the 5 percent significance level. However, the Granger causality relationships become fewer and fewer in the third and fourth period. Originality/value – This is the first paper to study the impact of the four major bio-fuel policies of Brazil, the European Union, and the USA.

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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal Journal of Financial Economic Policy.

    Volume (Year): 3 (2011)
    Issue (Month): 2 (July)
    Pages: 161-174

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    Handle: RePEc:eme:jfeppp:v:3:y:2011:i:2:p:161-174

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    Related research

    Keywords: Brazil; European union; Fuels; Futures markets; Oils; United States of America;

    References

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