Correlations between Biofuels and Related Commodities: A Taxonomy Perspective
42 Pages Posted: 13 Jun 2012
Date Written: June 1, 2012
In this paper, we analyze the relationships between the prices of biodiesel, ethanol and related fuels and agricultural commodities with a use of minimal spanning trees and hierarchical trees. We find that in short-term, both ethanol and biodiesel are very weakly connected with the other commodities. In medium-term, the biofuels network becomes more structured. The system splits into two well separated branches - a fuels part and a food part. Biodiesel tends to the fuels branch and ethanol to the food branch. When the periods before and after the food crisis of 2007/2008 are compared, the connections are much stronger for the post-crisis period. This is the first application of this methodology on the biofuels systems.
Keywords: biofuels, networks, minimal spanning tree, hierarchical tree
JEL Classification: C38, Q16, Q42
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