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Abstract

This study examines the link between ethanol markets in the United States and Brazil. Vector autoregression is used to explore the relationship between ethanol prices in the United States and Brazil and the primary feed stocks used in production for January 2005 through February 2011. Vector autoregression is also used to explore the relationship between the two ethanol markets and the Brazilian real/United States dollar exchange rate. Causality tests, impulse responses, and forecast error decomposition are used to determine the economic implications. Results indicate the markets are not as closely linked as many have hypothesized.

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