Crude Oil and Biofuel Agricultural Commodity Prices

Semei Coronado, Omar Rojas, Rafael Romero-Meza, Apostolos Serletis and Leslie Verteramo Chiu
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Semei Coronado: Universidad de Guadalajara
Omar Rojas: Universidad Panamericana
Rafael Romero-Meza: Universidad Alberto Hurtado
Leslie Verteramo Chiu: Cornell University

A chapter in Uncertainty, Expectations and Asset Price Dynamics, 2018, pp 107-123 from Springer

Abstract: Abstract Crop prices in the United States (USA), and especially corn prices, have been displaying important changes in the last 10 years, after the ethanol mandate in 2005. Motivated by these significant price changes, there has been a growing interest in the study of price transmission from oil prices to agricultural commodity prices. In this contribution, we concentrate on the relationship between the price of oil and the prices of three agricultural commodities that are used for biofuels production: corn, soybeans, and sugar. In doing so, we apply linear Granger causality tests, the nonlinear causality test of Diks and Panchenko (J Econ Dyn Control 30:1647–1669, 2006), and the Brooks and Hinich (J Empir Financ 6:385–404) cross-bicorrelation test to daily data over the period from 1990 to 2016. Coherent with the previous studies, we find weak linear Granger causality, but strong bidirectional nonlinear causality, especially for the period from 2006 to 2016. Using the Brooks and Hinich test, we also identify the number of epochs (nonoverlapped windows) where there is nonlinear dependence between each pair of series. We find that most cross-bicorrelation windows coincide from 2006 to 2016, indicating that the nonlinear dynamics between the series studied have changed in recent years in the aftermath of the ethanol mandate. Our results provide hints in order to improve our understanding of the effects of the implemented policies in the energy sector on agricultural commodities.

JEL-codes: C32 G15 O13 Q13 Q43 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (11)

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DOI: 10.1007/978-3-319-98714-9_5

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