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Do energy prices stimulate food price volatility? Examining volatility transmission between US oil, ethanol and corn markets

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  • Gardebroek, Cornelis
  • Hernandez, Manuel A.

Abstract

This paper examines volatility transmission in oil, ethanol and corn prices in the United States between 1997 and 2011. We follow a multivariate GARCH approach to evaluate the level of interdependence and the dynamics of volatility across these markets. The estimation results indicate a higher interaction between ethanol and corn markets in recent years, particularly after 2006 when ethanol became the sole alternative oxygenate for gasoline. We only observe, however, significant volatility spillovers from corn to ethanol prices but not the converse. We also do not find major cross-volatility effects from oil to corn markets. The results do not provide evidence of volatility in energy markets stimulating price volatility in the US corn market.

Suggested Citation

  • Gardebroek, Cornelis & Hernandez, Manuel A., 2013. "Do energy prices stimulate food price volatility? Examining volatility transmission between US oil, ethanol and corn markets," Energy Economics, Elsevier, vol. 40(C), pages 119-129.
  • Handle: RePEc:eee:eneeco:v:40:y:2013:i:c:p:119-129
    DOI: 10.1016/j.eneco.2013.06.013
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    Keywords

    Volatility transmission; Biofuels; Corn; Multivariate GARCH;

    JEL classification:

    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
    • 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

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