Vegetable oil market and biofuel policy: An asymmetric cointegration approach

Massimo Peri and Lucia Baldi

Energy Economics, 2010, vol. 32, issue 3, 687-693

Abstract: The present paper analyses the long-run relationship between vegetable oil prices and conventional diesel prices in the EU for the period 2005-2007. We applied recent developments in the threshold cointegration approach to investigate the presence of asymmetric dynamic adjusting processes between the prices of rapeseed oil, sunflower oil, and soybean oil, and the price of a mineral oil: diesel. The results presented suggest a two-regime threshold cointegration model only for the rapeseed oil-diesel price pair. Thus, the rapeseed oil price adjusts rapidly to its long-run equilibrium, determined by fossil diesel prices, but this adjustment is asymmetric: it differs if the divergence between the two prices is above or below a critical threshold. Consequently, rapeseed oil appears particularly exposed to external shocks deriving from global political scenarios, suggesting the reassessment of the high quota (80%) of EU biodiesel represented by this vegetable oil.

Keywords: Vegetable; oils; market; Biofuel; policy; Diesel; price; Threshold; cointegration; European; Union (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (53)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:32:y:2010:i:3:p:687-693

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