The Ethanol Mandate and Crude Oil and Biofuel Agricultural Commodity Price Dynamics
Journal of Commodity Markets, Forthcoming
17 Pages Posted: 29 Jul 2018
Date Written: July 8, 2018
We investigate mean and volatility spillovers between the crude oil market and the main biofuel feedstock markets (corn, soybean, and sugar). In doing so, we estimate a four-variable vector error correction (VEC) GARCH-in-Mean model with a BEKK representation for the variance equation, and also examine the possible effects of the ethanol mandate by including a dummy variable in both the conditional mean and variance equations. We find that the oil market and the biofuel feedstock markets are tightly interconnected and that the ethanol mandate has strengthened their linkages in terms of volatility spillovers.
Keywords: VEC-GARCH-in-Mean; BEKK Model; Mean and Volatility Spillovers; Structural Breaks
JEL Classification: C32; E32; E52
Suggested Citation: Suggested Citation