NBER

Reinhard Ellwanger

Bank of Canada
234 Wellington Street
Ottawa, Ontario K1A 0G9
Canada

E-Mail: EmailAddress: hidden: you can email any NBER-related person as first underscore last at nber dot org
Institutional Affiliation: Bank of Canada

NBER Working Papers and Publications

August 2017Did the Renewable Fuel Standard Shift Market Expectations of the Price of Ethanol?
with Christiane J.S. Baumeister, Lutz Kilian: w23752
It is commonly believed that the response of the price of corn ethanol (and hence of the price of corn) to shifts in biofuel policies operates in part through market expectations and shifts in storage demand, yet to date it has proved difficult to measure these expectations and to empirically evaluate this view. We quantify the extent to which price changes were anticipated by the market, the extent to which they were unanticipated, and how the risk premium in these markets has evolved. We show that the Renewable Fuel Standard (RFS) increased ethanol price expectations by as much $1.50 initially, raising ethanol storage demand starting and causing an increase in the price of ethanol. There is no conclusive evidence that the tightening of the RFS in 2008 shifted market expectations, but our...

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