Non-parametric and parametric modeling of biodiesel, sunflower oil, and crude oil price relationships

Multivariate local linear regression and parametric error correction models are applied to assess price linkages and price transmission patterns between food and energy prices in Spain. Weekly biodiesel, sunflower and crude oil prices observed from November 2006 to October 2010 are used in the empirical analysis. Results suggest the existence of a long-run, equilibrium relationship between the three prices studied. Biodiesel is the only variable that adjusts to deviations from this long-run relationship. Local linear regression techniques show that the speed of adjustment of biodiesel prices is faster when biodiesel is relatively cheap than when it is expensive. Energy prices are also found to influence sunflower oil prices through short-run price dynamics.

► We assess price links between biodiesel, sunflower and crude oil prices in Spain. ► Multivariate local linear regression and parametric error correction models are applied. ► The three prices studied maintain a long-run relationship. ► Biodiesel is the only variable that adjusts to deviations from this relationship. ► The speed of adjustment is faster when biodiesel is relatively cheap than when it is expensive.