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Considering macroeconomic indicators in the food before fuel nexus

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  • Qiu, Cheng
  • Colson, Gregory
  • Escalante, Cesar
  • Wetzstein, Michael

Abstract

A structural vector autoregression (SVAR) model along with a direct acyclic graph is employed to decompose how supply/demand structural shocks affect food and fuel markets. The results support the hypothesis that fundamental market forces of demand and supply are the main drivers of food price volatility. Increased biofuel production may cause short-run food price increases but not long-run price shifts. Decentralized freely operating markets will mitigate the persistence of any price shocks and restore prices to their long-run trends. The main policy implications are that oil, gasoline, and ethanol market shocks do not spillover into grain prices, which indicates no long-run food before fuel issue. In the short-run, grain prices can spike due to market shocks, so programs designed to blunt these price spikes may be warranted.

Suggested Citation

  • Qiu, Cheng & Colson, Gregory & Escalante, Cesar & Wetzstein, Michael, 2012. "Considering macroeconomic indicators in the food before fuel nexus," Energy Economics, Elsevier, vol. 34(6), pages 2021-2028.
    • Handle: RePEc:eee:eneeco:v:34:y:2012:i:6:p:2021-2028
    DOI: 10.1016/j.eneco.2012.08.018
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    More about this item

    Keywords

    Biofuel; Corn; DAG; Ethanol;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy; Animal Welfare Policy
    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • 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

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