Biofuel Substitution in the U.S. Transportation Sector

Hossain, A K M Nurul; Serletis, Apostolos

doi:10.2139/ssrn.3577371

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Biofuel Substitution in the U.S. Transportation Sector

Forthcoming in: The Journal of Economic Asymmetries

26 Pages Posted: 7 May 2020

See all articles by A K M Nurul Hossain

Apostolos Serletis

University of Calgary - Department of Economics

Date Written: March 22, 2020

Abstract

We investigate biofuel substitution in the U.S. transportation sector, for the period from 1990 to 2017, using the normalized quadratic model. We relax the homoskedasticity assumption and instead assume that the covariance matrix of the errors of the flexible demand system is time-varying. We generate inference consistent with neoclassical microeconomic theory and the data generating process. Our results show that there is a small, but statistically significant substitution possibility between biofuel and natural gas, as well as between biofuel and oil, when the prices of fossil fuels change.

Keywords: Biofuels, Interfuel substitution, Normalized quadratic

JEL Classification: C32, Q42

Suggested Citation: Suggested Citation

Hossain, A K M Nurul and Serletis, Apostolos, Biofuel Substitution in the U.S. Transportation Sector (March 22, 2020). Forthcoming in: The Journal of Economic Asymmetries, Available at SSRN: https://ssrn.com/abstract=3577371 or http://dx.doi.org/10.2139/ssrn.3577371