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On the Evolving Relationship between Corn and Oil Prices

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Listed author(s):
  • Eskandar Elmarzougui
  • Bruno Larue

Abstract

The relationship between corn and oil prices is not a stable one. We identified three breaks in the relationship between corn and oil prices. The first break coincides with the second oil crisis. The second break marks the end of the agricultural export subsidy war between the EU and the US in the mid 1980s while the third one occurred at the beginning of the ethanol boom at the very end of the 1990s. The relationship between corn and oil prices tends to be stronger when oil prices are highly volatile and when agricultural policies create less distortion. The ethanol boom strengthened the relation between corn and oil prices which are (were not) cointegrated in the fourth regime (first three) regime(s). Impulse response functions confirm that corn prices systematically respond to oil price shocks, but the converse is not observed.

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Paper provided by CREATE in its series Cahiers de recherche CREATE with number 2011-3.

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Date of creation: 2011
Handle: RePEc:lvl:creacr:2011-3
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Keywords: Oil corn; structural changes; cointegration; ethanol; protectionism;

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Find related papers by 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
  • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
  • Q17 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agriculture in International Trade
  • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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Cited by:

  1. Walter Enders & Matthew T. Holt, 2014. "The Evolving Relationships between Agricultural and Energy Commodity Prices: A Shifting-Mean Vector Autoregressive Analysis," NBER Chapters,in: The Economics of Food Price Volatility, pages 135-187 National Bureau of Economic Research, Inc.
  2. Mohcine Bakhat & Klaas WŸrzburg, 2013. "Price Relationships of Crude Oil and Food Commodities," Working Papers fa06-2013, Economics for Energy.

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