Volatility spillovers between food and fuel markets: Do administrative regulations affect the transmission?

Abstract The rapid growth of biofuel production has led to the food versus fuel dilemma, with studies showing that the use of crops as inputs drives up prices, volatility and volatility spillovers in food and fuel markets. Renewable identification numbers (RINs) are fuel credits that track and enforce compliance with U.S. renewable energy mandates, and may ameliorate price volatility disruptions and reduce spillovers. However, existing studies have largely ignored the relationship between RINs and price volatility. Using weekly spot price data over the period 2008–2018, we examine the impact of RINs on the volatility and market interdependence between the corn, ethanol, and oil markets. Through an asymmetric multivariate GARCH model, we find that the RIN market contributes to a reduction of volatility in the ethanol market, and also reduces volatility spillovers between corn and ethanol markets. Lastly, RINs weaken the market interdependence between ethanol and corn and ethanol and oil.