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Are there Multiple Bubbles in the Ethanol-Gasoline Price Ratio of Brazil?

Author

Listed:
  • Ghassen El Montasser

    (Ecole supérieure de commerce de Tunis, University of Manouba, Tunisia)

  • Rangan Gupta

    (Department of Economics, University of Pretoria)

  • Andre Luis Martins

    (COPPEAD Graduate Business School, Federal University of Rio de Janeiro, Rua Paschoal Lemme, 355. 21949-900 Rio de Janeiro)

  • Peter Wanke

    (COPPEAD Graduate Business School, Federal University of Rio de Janeiro, Rua Paschoal Lemme, 355. 21949-900 Rio de Janeiro)

Abstract

This paper presents an analysis of ethanol-gasoline price ratio in Brazil from 2000 to 2012. Since 2008 Brazilian Government has artificially frozen gasoline prices while prices of ethanol to the consumer were still liberated. Considering that annual inflation in Brazil is around 5% per year and increase in costs is transferred to ethanol prices this explain why ethanol consumption decays while gasoline consumption boosts. In Brazil, consumers are often told that ethanol is more advantageous for refueling cars when such price ration is below 0.70. In this paper, we use right-tailed ADF tests, developed recently by Phillips et al., (2013), to check for bubbles in this ratio. The results obtained suggest the existence of two bubbles: one has already collapsed and the other is still on course since 2010. Policy implications are also derived.

Suggested Citation

  • Ghassen El Montasser & Rangan Gupta & Andre Luis Martins & Peter Wanke, 2014. "Are there Multiple Bubbles in the Ethanol-Gasoline Price Ratio of Brazil?," Working Papers 201479, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:201479
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    as
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    2. Eckert, Jony Javorski & Silva, Fabrício L. & da Silva, Samuel Filgueira & Bueno, André Valente & de Oliveira, Mona Lisa Moura & Silva, Ludmila C.A., 2022. "Optimal design and power management control of hybrid biofuel–electric powertrain," Applied Energy, Elsevier, vol. 325(C).
    3. Alola, Andrew Adewale, 2022. "The nexus of renewable energy equity and agricultural commodities in the United States: Evidence of regime-switching and price bubbles," Energy, Elsevier, vol. 239(PD).
    4. Xie, Zixiong & Chen, Shyh-Wei & Wu, An-Chi, 2019. "Asymmetric adjustment, non-linearity and housing price bubbles: New international evidence," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).
    5. Luo, Jiawen & Ji, Qiang, 2018. "High-frequency volatility connectedness between the US crude oil market and China's agricultural commodity markets," Energy Economics, Elsevier, vol. 76(C), pages 424-438.
    6. Derick David Quintino & Heloisa Lee Burnquist & Paulo Ferreira, 2022. "Relative Prices of Ethanol-Gasoline in the Major Brazilian Capitals: An Analysis to Support Public Policies," Energies, MDPI, vol. 15(13), pages 1-23, June.
    7. Hakan Yıldırım, 2022. "VIX or ınvestors scare?," Quality & Quantity: International Journal of Methodology, Springer, vol. 56(2), pages 769-777, April.
    8. Zhu, Bo & Lin, Renda & Deng, Yuanyue & Chen, Pingshe & Chevallier, Julien, 2021. "Intersectoral systemic risk spillovers between energy and agriculture under the financial and COVID-19 crises," Economic Modelling, Elsevier, vol. 105(C).
    9. Aloisio S. Nascimento Filho & Hugo Saba & Rafael G. O. dos Santos & João Gabriel A. Calmon & Marcio L. V. Araújo & Eduardo M. F. Jorge & Thiago B. Murari, 2021. "Analysis of Hydrous Ethanol Price Competitiveness after the Implementation of the Fossil Fuel Import Price Parity Policy in Brazil," Sustainability, MDPI, vol. 13(17), pages 1-12, September.
    10. Potrykus, Marcin, 2023. "Price bubbles in commodity market – A single time series and panel data analysis," The Quarterly Review of Economics and Finance, Elsevier, vol. 87(C), pages 110-117.
    11. Laurini, Márcio Poletti, 2017. "The spatio-temporal dynamics of ethanol/gasoline price ratio in Brazil," Renewable and Sustainable Energy Reviews, Elsevier, vol. 70(C), pages 1-12.
    12. Luo, Jiawen & Marfatia, Hardik A. & Ji, Qiang & Klein, Tony, 2023. "Co-volatility and asymmetric transmission of risks between the global oil and China's futures markets," Energy Economics, Elsevier, vol. 117(C).

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    More about this item

    Keywords

    Brazil; Bubbles; Ethanol-Gasoline Price-ratio; Right-tailed ADF tests;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • Q16 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - R&D; Agricultural Technology; Biofuels; Agricultural Extension Services
    • Q21 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Demand and Supply; Prices

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