Journal
AGRICULTURAL ECONOMICS
Volume 51, Issue 3, Pages 387-402Publisher
WILEY
DOI: 10.1111/agec.12561
Keywords
biofuel mandates and tax credits; commodity markets; multivariate GARCH; volatility spillovers
Categories
Funding
- Deutscher Akademischer Austauschdienst
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Over recent decades, the link between crude oil and agricultural markets has been reinforced following the introduction of biofuels. We use timely measures of (co)variation spillovers to analyze the role of crude oil in shaping price uncertainties of agricultural commodities, which are largely used as biofuel feedstocks. Our sectoral- and market-specific measures distinguish tranquil (1995-2005) and crisis episodes (2006-2015), as well as periods during which either consumption mandates or tax credits were enacted to spur biofuels. During the crisis period, crude oil volatility transmissions account for 16% (20%) of price uncertainties in ethanol (biodiesel) feedstock markets on average. Moreover, we find evidence of enhanced volatility transmissions under tax credit regimes compared with consumption mandates. The results from pooled regressions confirm stronger volatility transmissions by about 12% under the enactment of tax credits.
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