The nexus of renewable energy equity and agricultural commodities in the United States: Evidence of regime-switching and price bubbles

The opportunity cost of producing efficient energy from renewable energy sources especially from agricultural products amid increasing threat of food insecurity has remained policymakers' nightmare. On this note, this study employed the regime inference (the Markov switching model) to examine the response of renewable energy equity relative to prices of corn, soybean and wheat for the United States over the period 20/01/2012-2/08/2018. Additionally, the SADF (Supremum Augmented Dickey Fuller) test is further employed to investigate the evidence of speculative bubbles in the prices of the concern commodities. With a significant evidence of regime switching, the study reveals positive impacts of soybean and wheat on the renewable energy equity in both regimes while the impact is negative in the regimes for corn prices. The positive impact of soybean is an indication that the share of renewable energy and share of its export is highest while corn is being recently preferred and consumed as stable food rather than a source of renewable energy. Furthermore, a sparing evidence of explosive process and collapse bubbles is observed in all the examined commodities except for soybeans. Moreover, with the frequency domain Granger causality approach, the results show overwhelming evidence of bidirectional Granger causality especially between renewable energy equity and the agricultural commodities at varying frequencies. Thus, the study offers effective policy frameworks through the lens of renewable energy development and agriculture for the United States and for other similar economies. (c) 2021 Elsevier Ltd. All rights reserved.

Automated summary

Amid increasing threat of food insecurity, the opportunity cost of producing efficient energy from renewable energy sources, especially from agricultural products, remains policymakers' nightmare; significant evidence of regime switching is found, with soybean and wheat having positive impacts on renewable energy equity while corn prices have negative impacts; weak evidence of explosive processes and collapse bubbles is observed in all examined commodities except for soybeans.