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Price transmission between biofuels, fuels, and food commodities

Authors

  • Ladislav Kristoufek,

    Corresponding author
    1. Academy of Sciences of the Czech Republic, Prague, Czech Republic, and Charles University, Prague, Czech Republic
    • Correspondence to: Ladislavl Kristoufek, Institute of Information Theory and Automation, Academy of Sciences of the Czech Republic, Pod Vodarenskou vezi 4, 182 08, Prague, Czech Republic, and Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Opletalova 26, 110 00, Prague, Czech Republic. E-mail: kristouf@utia.cas.cz

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  • Karel Janda,

    1. Charles University, Prague, Czech Republic and University of Economics, Prague, Czech Republic
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  • David Zilberman

    1. University of California, Berkeley, CA, USA
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Abstract

For the biofuel markets and related commodities, we study their price transmission, which is in fact equivalent to studying price cross-elasticities. Importantly, we focus on the price dependence of the non-linear price transmission mechanism. We discuss several methodological caveats. Specifically, we combine the memory robust feasible generalized least squares estimation with two-stage least squares to control for endogenity bias and inconsistency. We find that both ethanol and biodiesel prices are responsive to their production factors (ethanol to corn, and biodiesel to German diesel). The strength of transmission between both significant pairs increased remarkably during the food crisis of 2007/2008. © 2013 Society of Chemical Industry and John Wiley & Sons, Ltd

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