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A New Look at the Emergence of an Agro-Energy Nexus: A Graphical Causal Approach

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  • Dae-Heum Kwon
  • Jungho Baek
  • Won W. Koo

Abstract

This study examines causal mechanisms linking exchange rates and prices of oil and ethanol to the 2006-08 price surge in corn, soybeans and wheat, as well as identifies the relative importance of the selected factors to the price spikes using the graphical causal method and forecast error variance decomposition (FEVD). Results suggest that the interactions among the crop prices are more important than other causal factors in explaining the price hikes. We also find that significant growth in the use of corn for biofuel production and hence increased corn prices play dominant roles in price setting among the major crops.

Suggested Citation

  • Dae-Heum Kwon & Jungho Baek & Won W. Koo, 2012. "A New Look at the Emergence of an Agro-Energy Nexus: A Graphical Causal Approach," Business and Economic Research, Macrothink Institute, vol. 2(2), pages 42-53, December.
    • Handle: RePEc:mth:ber888:v:2:y:2012:i:2:p:42-53
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    References listed on IDEAS

    as
    1. Muhammad, Andrew & Kebede, Ellene, 2008. "The Emergence of an Agro-Energy Sector: Is Agriculture Importing Instability from the Oil Sector?," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 24(01), pages 1-4.
    2. Trostle, Ronald, 2008. "Factors Contributing to Recent Increases in Food Commodity Prices (PowerPoint)," Seminars 43902, USDA Economists Group.
    3. Derek Headey & Shenggen Fan, 2008. "Anatomy of a crisis: the causes and consequences of surging food prices," Agricultural Economics, International Association of Agricultural Economists, vol. 39(s1), pages 375-391, November.
    4. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-836, July.
    5. Park, Hwanil & Fortenbery, T. Randall, 2007. "The Effect of Ethanol Production on the U.S. National Corn Price," 2007 Conference, April 16-17, 2007, Chicago, Illinois 37565, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    6. Mitchell, Donald, 2008. "A note on rising food prices," Policy Research Working Paper Series 4682, The World Bank.
    7. Jungho Baek & Won W. Koo, 2010. "Analyzing Factors Affecting U.S. Food Price Inflation," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 58(3), pages 303-320, September.
    8. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
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    More about this item

    Keywords

    Exchange rates; Food Price; Graphical Causal Method; Price surge;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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