Abstract
Using pooled regional time-series data and panel data estimation, we quantify the impact of
monthly ethanol production on monthly retail regular gasoline prices. This analysis suggests that
the growth in ethanol production has caused retail gasoline prices to be $0.29 to $0.40 per gallon
lower than would otherwise have been the case. The analysis shows that the negative impact of
ethanol on gasoline prices varies considerably across regions. The Midwest region has the
biggest impact, at $0.39/gallon, while the Rocky Mountain region had the smallest impact, at
$0.17/gallon. The results also indicate that ethanol production has significantly reduced the profit
margin of the oil refinery industry. The results are robust with respect to alternative model
specifications.
Keywords: crack spread, crude oil prices, ethanol, gasoline prices.
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