# 16-038/III (2016-05-17)

Author(s)
David E. Allen, University of Sydney, and University of South Australia, Australia; Chialin Chang, National Chung Hsing University, Taiwan; Michael McAleer, National Tsing Hua University, Taiwan; Erasmus University Rotterdam, the Netherlands; Complutense University of Madrid, Spain; Abhay K. Singh, Edith Cowan University, Australia
Keywords:
Bio-fuels , time series, cointegration , Markov-switching , VECM, Impulse Responses, Volatility
JEL codes:
C22, Q02, Q35, Q42

This paper features an analysis of the cointegration relationships among agricultural commodity, ethanol and Cushing crude oil spot and futures prices. The use of grains for the creation of bio-fuels has sparked fears that these demands are inflating food prices. We analyse approximately 10 years of daily spot and futures prices for corn, wheat, sugar ethanol and oil prices from Datastream for the period 19 July 2006 to 2 July 2015. The analysis, featuring Engle-Granger pairwise cointegration and Markov-switching VECM and Impulse Response Analysis, confirms that these markets have significant linkages which vary according to whether they are in low or high volatility regimes.