Time-Frequency Dynamics of Bio-Fuels-Food System

CAMA Working Paper 27/2013

20 Pages Posted: 8 Jun 2013

See all articles by Lukas Vacha

Lukas Vacha

Institute of Information Theory and Automation, Academy of Sciences of the Czech Republic; Charles University in Prague - Department of Economics

Karel Janda

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

Ladislav Kristoufek

Charles University in Prague; Institute of Information Theory and Automation, Prague

David Zilberman

University of California, Berkeley - Department of Agricultural & Resource Economics

Date Written: May 31, 2013

Abstract

For the first time, we apply the wavelet coherence methodology on biofuels (ethanol and biodiesel) and a wide range of related commodities (gasoline, diesel, crude oil, corn, wheat, soybeans, sugarcane and rapeseed oil). This way, we are able to investigate dynamics of correlations in time and across scales (frequencies) with a model-free approach. We show that correlations indeed vary in time and across frequencies. We find two highly correlated pairs which are strongly connected at low frequencies - ethanol with corn and biodiesel with German diesel - during almost the whole analyzed period (2003-2011). Structure of correlations remarkably changes during the food crisis - higher frequencies become important for both mentioned pairs. This implies that during stable periods, ethanol is correlated with corn and biodiesel is correlated with German diesel mainly at low frequencies so that they follow a common long-term trend. However, in the crisis periods, ethanol (biodiesel) is led by corn (German diesel) even at high frequencies (low scales), which implies that the biofuels prices react more rapidly to the changes in their producing factors.

Keywords: biofuels, prices, correlations, wavelet coherence

JEL Classification: C22, Q16, Q42

Suggested Citation

Vacha, Lukas and Janda, Karel and Kristoufek, Ladislav and Kristoufek, Ladislav and Zilberman, David, Time-Frequency Dynamics of Bio-Fuels-Food System (May 31, 2013). CAMA Working Paper 27/2013, Available at SSRN: https://ssrn.com/abstract=2272490 or http://dx.doi.org/10.2139/ssrn.2272490

Lukas Vacha (Contact Author)

Institute of Information Theory and Automation, Academy of Sciences of the Czech Republic ( email )

Pod vodarenskou vezi 4
Praha, CZ-18208
Czech Republic

Charles University in Prague - Department of Economics ( email )

Opletalova 26
Prague, 11000
Czech Republic

Karel Janda

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

Politickych veznu 7
Prague, 111 21
Czech Republic
+422 240 05 223 (Phone)
+422 242 11 374 (Fax)

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

Ladislav Kristoufek

Charles University in Prague ( email )

Celetná 13
Praha 1, 116 36
Czech Republic

Institute of Information Theory and Automation, Prague ( email )

Pod vodarenskou vezi 4
Praha, CZ-18208
Czech Republic

David Zilberman

University of California, Berkeley - Department of Agricultural & Resource Economics ( email )

Berkeley, CA 94720
United States

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