Response to “Ethanol Production and Gasoline Prices: A Spurious Correlation” by Knittel and Smith
Dermot J. Hayes
August 2012 [12-WP 529]
Hayes, D.J. 2012. "Response to “Ethanol Production and Gasoline Prices: A Spurious Correlation” by Knittel and Smith." Working paper 12-WP 529. Center for Agricultural and Rural Development, Iowa State University.
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.”