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Nonlinearities in the US corn-ethanol-oil price system

  • Serra, Teresa
  • Zilberman, David
  • Gil, Jose Maria
  • Goodwin, Barry K.

We use a smooth transition vector error correction model to assess price relationships within the US ethanol industry. Daily ethanol, corn and oil futures prices observed from mid-2005 to mid-2007 are used in the analysis. Results indicate the existence of an equilibrium relationship between ethanol, corn and oil prices. However, only ethanol prices adjust, in a non-linear fashion, to deviations from this long-run parity. Generalized impulse response functions indicate that a shock to both oil and corn prices causes a change in ethanol prices of the same sign. Ethanol responses usually reach a peak after about 10 days of the initial shock and fade away within 35 days.

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Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida with number 6512.

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Date of creation: 2008
Date of revision:
Handle: RePEc:ags:aaea08:6512
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  7. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-36, July.
  8. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
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  10. Elliott, Graham, 1999. "Efficient Tests for a Unit Root When the Initial Observation Is Drawn from Its Unconditional Distribution," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(3), pages 767-83, August.
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