THE PRICE TRANSMISSION RELATIONSHIP BETWEEN ETHANOL, WHOLESALE GASOLINE, AND BLENDED RETAIL GASOLINE

The volatile relationship between agricultural commodity prices and fuel prices has been a topic of interest in local and global economies over the past several years. For most applications, the price of retail gasoline in the United States is a function of the underlying price of crude oil and the price of ethanol (made from corn) that is part of the blended fuel. The typical retail-level blend of fuel in the United States consists of ninety percent gasoline and ten percent ethanol. We apply a polynomial distributed lag to a price transmission model that incorporates ethanol prices as well as wholesale and retail level gasoline prices. Our results indicate the existence of asymmetry between wholesale and retail gasoline prices. Our results also indicated the lack of asymmetry between ethanol and retail gasoline prices