Inside the Black Box: Price Linkage and Transmission Between Energy and Agricultural Markets

This study addresses the complex relationship between energy and agricultural markets—represented by corn, ethanol, and gasoline prices—particularly in light of the growth in biofuel production. Contemporaneous price response and transmission of market shocks are investigated in a simultaneous-equation system to disclose fundamental driving forces before and after the development of large-scale ethanol production. We use a dynamic conditional correlation multivariate GARCH model to demonstrate a strengthening relationship among corn, ethanol, and gasoline prices. We identify a structural change point at March 25, 2008 using the test by Bai and Perron (2003). The strengthened market relationship is further illustrated by variance decomposition based on a structural VAR model.


Issue Date:
2011
Publication Type:
Conference Paper/ Presentation
PURL Identifier:
http://purl.umn.edu/103268
Total Pages:
5
JEL Codes:
C32; Q11; Q4
Series Statement:
Poster
AAEA




 Record created 2017-04-01, last modified 2017-04-26

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