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Non-linear price transmission between biofuels, fuels and food commodities

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Abstract

For the biofuel markets and related commodities, we study their price transmission, which is in fact equivalent to studying price cross-elasticities. Importantly, we focus on the price dependence of the price transmission mechanism. Several methodological caveats are discussed. Specifically, we combine the memory robust feasible generalized least squares estimation with two-stage least squares to control for endogeneity bias and inconsistency. We find that both ethanol and biodiesel prices are responsive to their production factors (ethanol to corn, and biodiesel to German diesel). The strength of transmission between both significant pairs increased remarkably during the food crisis of 2007/2008.

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Bibliographic Info

Paper provided by Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies in its series Working Papers IES with number 2013/16.

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Length: 23pages
Date of creation: Oct 2013
Date of revision: Oct 2013
Handle: RePEc:fau:wpaper:wp2013_16

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Keywords: biofuels; price transmission; non-linearity;

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Cited by:
  1. 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.

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