Non-Linear Price Transmission between Biofuels, Fuels and Food Commodities

CERGE-EI Working Paper Series No. 481

33 Pages Posted: 28 Apr 2013  

Ladislav Kristoufek

Charles University

Karel Janda

Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute)

David Zilberman

University of California, Berkeley - The Richard & Rhoda Goldman School of Public Policy

Date Written: February 2013

Abstract

For the biofuel markets and related commodities, we study their price transmission, which is in fact equivalent to studying price cross-elasticities. Importantly, we focus on the price dependence of the price transmission mechanism. Several methodological caveats are discussed. Specifically, we combine the memory robust feasible generalized least squares estimation with two-stage least squares to control for endogeneity bias and inconsistency. We find that both ethanol and biodiesel prices are responsive to their production factors (ethanol to corn, and biodiesel to German diesel). The strength of transmission between both significant pairs increased remarkably during the food crisis of 2007/2008. Causality tests further show that price changes in production factors lead the changes in biofuels even after controlling for price effects.

Keywords: biofuels, price transmission, price cross-elasticity, causality

JEL Classification: C22, Q16, Q42

Suggested Citation

Kristoufek, Ladislav and Janda, Karel and Zilberman, David, Non-Linear Price Transmission between Biofuels, Fuels and Food Commodities (February 2013). CERGE-EI Working Paper Series No. 481. Available at SSRN: https://ssrn.com/abstract=2257390 or http://dx.doi.org/10.2139/ssrn.2257390

Ladislav Kristoufek (Contact Author)

Charles University ( email )

Celetná 13
Praha 1, 116 36
Czech Republic

Karel Janda

Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute) ( email )

P.O. Box 882
7 Politickych veznu
Prague 1, 111 21
Czech Republic
+422 240 05 223 (Phone)
+422 242 11 374 (Fax)

HOME PAGE: http://www.cerge-ei.cz

David Zilberman

University of California, Berkeley - The Richard & Rhoda Goldman School of Public Policy ( email )

2607 Hearst Avenue
Berkeley, CA 94720
United States
510-642-6570 (Phone)
510-643-8911 (Fax)

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