The Effect of Oil Prices on the Domestic Supply of Corn: An Econometric Analysis
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In this paper, we attempt to establish a relationship between oil prices and the supply of corn. The main reason we are looking at corn and its relationship with oil prices is because corn is the main feedstock used for producing ethanol fuel in the United States. In our paper, we first examine a simple linear regression model to show that there are omitted variables in the model other than just the price of oil; there are other substitutes for making ethanol as well as other uses for the grains. We then continue with the multiple linear regression analysis by looking at the influence of crop yields for soybeans and sugar and the prices of chicken and pork. With this model, we are able to achieve a relatively high R-squared of 0.8317 which is approximately .2 higher than our R-squared for the simple regression model.