Do energy prices stimulate food price volatility? Examining volatility transmission between US oil, ethanol and corn markets

- We analyze volatility transmission in oil, ethanol, and corn prices in the US.
- Various multivariate GARCH models are estimated using weekly prices for 1997-2011.
- We find volatility spillovers from corn to ethanol prices but not the converse.
- Interaction between corn and ethanol price volatility is stronger since 2006.
- Volatility in energy prices does not appear to stimulate US corn price volatility.

This paper examines volatility transmission in oil, ethanol and corn prices in the United States between 1997 and 2011. We follow a multivariate GARCH approach to evaluate the level of interdependence and the dynamics of volatility across these markets. The estimation results indicate a higher interaction between ethanol and corn markets in recent years, particularly after 2006 when ethanol became the sole alternative oxygenate for gasoline. We only observe, however, significant volatility spillovers from corn to ethanol prices but not the converse. We also do not find major cross-volatility effects from oil to corn markets. The results do not provide evidence of volatility in energy markets stimulating price volatility in the US corn market.