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Price volatility in ethanol markets

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  • Serra, Teresa
  • Zilberman, David

Abstract

Our paper looks at how price volatility in the Brazilian ethanol industry changes over time and across markets. Demand and supply forces in the energy and food markets are likely to ensure that crude oil, ethanol and feedstock prices co-move in the long-run. Hence, when assessing price volatility changes and spillovers in the ethanol industry, one should also pay attention to the notion of cointegration. Until recently, the methods proposed to estimate cointegration relationships, have not explicitly considered time varying volatility in the data. Seo (2007) suggests an estimator of the cointegration vector that explicitly models conditional heteroskedasticity. More specifically, he proposes a maximum likelihood estimator that estimates the error correction model and the multivariate GARCH process jointly. We follow this proposal.

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Bibliographic Info

Paper provided by International Association of Agricultural Economists in its series 2009 Conference, August 16-22, 2009, Beijing, China with number 49940.

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Date of creation: 2009
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Handle: RePEc:ags:iaae09:49940

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Web page: http://www.iaae-agecon.org/
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Keywords: volatility; ethanol; cointegration; Demand and Price Analysis; Research Methods/ Statistical Methods; Q11; C32;

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  1. Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(01), pages 122-150, February.
  2. Perron, P., 1994. "Further Evidence on Breaking Trend Functions in Macroeconomic Variables," Cahiers de recherche 9421, Universite de Montreal, Departement de sciences economiques.
  3. Tim Bollerslev, 1986. "Generalized autoregressive conditional heteroskedasticity," EERI Research Paper Series EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
  4. Hamelinck, Carlo N & Faaij, Andre P.C., 2006. "Outlook for advanced biofuels," Energy Policy, Elsevier, vol. 34(17), pages 3268-3283, November.
  5. Sébastien Laurent & Luc Bauwens & Jeroen V. K. Rombouts, 2006. "Multivariate GARCH models: a survey," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(1), pages 79-109.
  6. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
  7. Oecd, 2006. "Agricultural Market Impacts of Future Growth in the Production of Biofuels," OECD Papers, OECD Publishing, vol. 6(1), pages 1-57.
  8. Kelvin Balcombe & Alastair Bailey & Jonathan Brooks, 2007. "Threshold Effects in Price Transmission: The Case of Brazilian Wheat, Maize, and Soya Prices," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(2), pages 308-323.
  9. Seo, Byeongseon, 2007. "Asymptotic distribution of the cointegrating vector estimator in error correction models with conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 137(1), pages 68-111, March.
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