Operational and Investment Response to Energy Prices in the OECD Manufacturing Sector
AbstractThis paper estimates the vintage capital model of energy demand and examines operational and investment responses to energy prices at disaggregate level using data from five OECD manufacturing industries. Applying the model to less aggregate level data helps avoiding the distortions from exogenous structural shifts and measurement errors. The results confirm the previous findings that including capital stock vintages significantly improves the econometric model's goodness of fit. Estimated own-price elasticities of energy demand vary between 0.26 and 1.00 and are economically sound. Estimated own-price investment elasticities of energy efficiency of capital stock vary between 0.03 and 0.9. The investment response to energy prices thus varies significantly across manufacturing industries, being significant in some of them and negligible in other. The results of policy simulations for the U.K. petrochemical industry (the most energy-intensive industry in the sample) indicate that total (operational and investment) own-price elasticity of energy demand is close to one.
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Bibliographic InfoPaper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 1015.
Date of creation: 15 Mar 2010
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Web page: http://www.econ.cam.ac.uk/index.htm
energy efficiency; energy prices; investment; vintage capital model;
Find related papers by JEL classification:
- D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
- Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
- Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
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- Antonia Díaz & Luis A. Puch, 2013. "A theory of investment and energy use," Economics Working Papers we1320, Universidad Carlos III, Departamento de Economía.
- Luis Puch & Antonia DÃaz, 2012. "A Theory of Energy Use," 2012 Meeting Papers 802, Society for Economic Dynamics.
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