Inside the Black Box: Price Linkage and Transmission Between Energy and Agricultural Markets
AbstractThis study addresses the complex relationship between energy and agricultural markets—represented by corn, ethanol, and gasoline prices—particularly in light of the growth in biofuel production. Contemporaneous price response and transmission of market shocks are investigated in a simultaneous-equation system to disclose fundamental driving forces before and after the development of large-scale ethanol production. We use a dynamic conditional correlation multivariate GARCH model to demonstrate a strengthening relationship among corn, ethanol, and gasoline prices. We identify a structural change point at March 25, 2008 using the test by Bai and Perron (2003). The strengthened market relationship is further illustrated by variance decomposition based on a structural VAR model.
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Bibliographic InfoPaper provided by Agricultural and Applied Economics Association in its series 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania with number 103268.
Date of creation: 2011
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corn; ethanol; gasoline; structural break; Structural VAR; GARCH; Agricultural and Food Policy; Demand and Price Analysis; Research Methods/ Statistical Methods; Resource /Energy Economics and Policy; C32; Q11; Q4;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
- Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
This paper has been announced in the following NEP Reports:
- NEP-AGR-2011-05-07 (Agricultural Economics)
- NEP-ALL-2011-05-07 (All new papers)
- NEP-ENE-2011-05-07 (Energy Economics)
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