Response to “Ethanol Production and Gasoline Prices: A Spurious Correlation” by Knittel and Smith

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2012-08-01
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Hayes, Dermot
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Center for Agricultural and Rural Development

The Center for Agricultural and Rural Development (CARD) conducts innovative public policy and economic research on agricultural, environmental, and food issues. CARD uniquely combines academic excellence with engagement and anticipatory thinking to inform and benefit society.

CARD researchers develop and apply economic theory, quantitative methods, and interdisciplinary approaches to create relevant knowledge. Communication efforts target state and federal policymakers; the research community; agricultural, food, and environmental groups; individual decision-makers; and international audiences.

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In a recent working paper, Christopher Knittel and Aaron Smith present an attack on a peer-reviewed paper “The Impact of Ethanol Production on US and Regional Gasoline Markets Relating Ethanol Production to Gasoline Prices" written by myself and Xiaodong Du, and published in 2009 in Energy Policy (Vol. 37 No.8), as well as two subsequent working papers in 2011 and 2012. Our work found that as ethanol production increased, the price of gasoline fell relative to the price of crude oil. Knittel and Smith claim to have refuted this result, and conclude that their “Empirical models that are most consistent with economic theory suggest effects that are near zero and statistically insignificant.”

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