The Ethanol Mandate and Crude Oil and Biofuel Agricultural Commodity Price Dynamics

Journal of Commodity Markets, Forthcoming

17 Pages Posted: 29 Jul 2018

See all articles by Apostolos Serletis

Apostolos Serletis

University of Calgary - Department of Economics

Libo Xu

University of San Francisco - Department of Economics

Date Written: July 8, 2018

Abstract

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

Serletis, Apostolos and Xu, Libo, The Ethanol Mandate and Crude Oil and Biofuel Agricultural Commodity Price Dynamics (July 8, 2018). Journal of Commodity Markets, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3210330 or http://dx.doi.org/10.2139/ssrn.3210330

Apostolos Serletis (Contact Author)

University of Calgary - Department of Economics ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
Canada
403 220-4091 (Phone)
403 282-5262 (Fax)

Libo Xu

University of San Francisco - Department of Economics ( email )

2130 Fulton Street
San Francisco, CA 94117-1080
United States

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