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Price Asymmetric Relationships in Commodity and Energy Markets

  • Wixson, Sarah E.
  • Katchova, Ani L.

Recent increases in the price of crude oil have led to a rise in the prominence of corn-based ethanol as an alternative source of energy. As a result linkages have been established between commodity and energy prices. The aim of this study is to determine if soybeans, corn, wheat, oil, and ethanol adjust their prices asymmetrically depending on whether their actual price is over or under-predicted with respect to one another. This study’s goal of determining if asymmetric price relationships exist is accomplished by using monthly time series price data incorporated into a distributed lag error correction model distinguishing between positive and negative price difference and positive and negative values of the error correction terms. The primary results of this study found that asymmetric price changes do occur in the commodity and energy markets. Interestingly, in all the asymmetric price adjustments that were found, with only one exception in the soybean-corn relationship, prices will adjust downward when the actual price of one variable is above its equilibrium price as determined by the price of another study variable and consequently would be expected to exhibit a downward adjustment in price in the following month.

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File URL: http://purl.umn.edu/122553
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Paper provided by European Association of Agricultural Economists in its series 123rd Seminar, February 23-24, 2012, Dublin, Ireland with number 122553.

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Date of creation: 23 Feb 2012
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Handle: RePEc:ags:eaa123:122553
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  1. M. Galeotti & A. Lanza & M. Manera, 2001. "Rockets and feathers revisited: an international comparison on European gasoline markets," Working Paper CRENoS 200112, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
  2. Hertel, Thomas W. & Beckman, Jayson F., 2010. "Commodity Price Volatility in the Biofuel Era: An Examination of the Linkage between Energy and Agricultural Markets," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 60857, Agricultural and Applied Economics Association.
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  6. Chang, Chia-Lin & Chen, Li-Hsueh & Hammoudeh, Shawkat & McAleer, Michael, 2012. "Asymmetric adjustments in the ethanol and grains markets," Energy Economics, Elsevier, vol. 34(6), pages 1990-2002.
  7. von Braun, Joachim & Ahmed, Akhter & Asenso-Okyere, Kwadwo & Fan, Shenggen & Gulati, Ashok & Hoddinott, John & Pandya-Lorch, Rajul & Rosegrant, Mark W. & Ruel, Marie & Torero, Maximo & van Rheenen, Te, 2008. "High food prices: The what, who, and how of proposed policy actions," Policy briefs 1A, International Food Policy Research Institute (IFPRI).
  8. Karali, Berna & Thurman, Walter N., 2010. "Components of Grain Futures Price Volatility," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 35(2), August.
  9. Meyer, Jochen & von Cramon-Taubadel, Stephan, 2002. "Asymmetric Price Transmission: A Survey," 2002 International Congress, August 28-31, 2002, Zaragoza, Spain 24822, European Association of Agricultural Economists.
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