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Are there Multiple Bubbles in the Ethanol-Gasoline Price Ratio of Brazil?

Ghassen El Montasser, Rangan Gupta (), Andre Martins () and Peter Wanke ()
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Andre Martins: COPPEAD Graduate Business School, Federal University of Rio de Janeiro, Rua Paschoal Lemme, 355. 21949-900 Rio de Janeiro
Peter Wanke: COPPEAD Graduate Business School, Federal University of Rio de Janeiro, Rua Paschoal Lemme, 355. 21949-900 Rio de Janeiro

No 201479, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper presents an analysis of ethanol-gasoline price ratio in Brazil from 2000 to 2012. Since 2008 Brazilian Government has artificially frozen gasoline prices while prices of ethanol to the consumer were still liberated. Considering that annual inflation in Brazil is around 5% per year and increase in costs is transferred to ethanol prices this explain why ethanol consumption decays while gasoline consumption boosts. In Brazil, consumers are often told that ethanol is more advantageous for refueling cars when such price ration is below 0.70. In this paper, we use right-tailed ADF tests, developed recently by Phillips et al., (2013), to check for bubbles in this ratio. The results obtained suggest the existence of two bubbles: one has already collapsed and the other is still on course since 2010. Policy implications are also derived.

Keywords: Brazil; Bubbles; Ethanol-Gasoline Price-ratio; Right-tailed ADF tests (search for similar items in EconPapers)
JEL-codes: C15 C22 Q16 Q21 (search for similar items in EconPapers)
Pages: 12 pages
Date: 2014-12
New Economics Papers: this item is included in nep-agr and nep-ene
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Journal Article: Are there multiple bubbles in the ethanol–gasoline price ratio of Brazil? (2015) Downloads
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