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Threshold effects of energy price changes

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Author Info

  • Soest, D.P. van
  • Kuper, G.H.
  • Jacobs, J.

    (Groningen University)

Abstract

This paper presents a theoretical model emphasising energy investments’characteristics of uncertainty and irreversibility. The theoretical modelsuggests threshold effects. Firms are induced to substitute away from energyonly if prices of energy exceed a certain threshold level and they reverse thetechnology only if energy prices are low enough. Estimating a simpleinvestment relation using panel data for the Dutch economy, we findevidence for threshold effects.

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File URL: http://irs.ub.rug.nl/ppn/240565746
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Bibliographic Info

Paper provided by University of Groningen, Research Institute SOM (Systems, Organisations and Management) in its series Research Report with number 00C31.

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Date of creation: 2000
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Handle: RePEc:dgr:rugsom:00c31

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References

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  1. Ernst Berndt & Charles Kolstad & Jong-Kun Lee, 1993. "Measuring the Energy Efficiency and Productivity Impacts of Embodied Technical Change," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 33-56.
  2. Bacon, Robert W., 1991. "Rockets and feathers: the asymmetric speed of adjustment of UK retail gasoline prices to cost changes," Energy Economics, Elsevier, vol. 13(3), pages 211-218, July.
  3. Pindyck, Robert S, 1991. "Irreversibility, Uncertainty, and Investment," Journal of Economic Literature, American Economic Association, vol. 29(3), pages 1110-48, September.
  4. Knut Anton Mork & Oystein Olsen & Hans Terje Mysen, 1994. "Macroeconomic Responses to Oil Price Increases and Decreases in Seven OECD Countries," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 19-36.
  5. Mork, Knut Anton, 1989. "Oil and Macroeconomy When Prices Go Up and Down: An Extension of Hamilton's Results," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 740-44, June.
  6. Ben S. Bernanke, 1980. "Irreversibility, Uncertainty, and Cyclical Investment," NBER Working Papers 0502, National Bureau of Economic Research, Inc.
  7. Kuper, Gerard H. & Soest, Daan P. van, 1999. "Asymmetric adaptations to energy price changes," CCSO Working Papers 199913, University of Groningen, CCSO Centre for Economic Research.
  8. Peter Ferderer, J., 1996. "Oil price volatility and the macroeconomy," Journal of Macroeconomics, Elsevier, vol. 18(1), pages 1-26.
  9. Hamilton, James D, 1988. "A Neoclassical Model of Unemployment and the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 96(3), pages 593-617, June.
  10. Chang, Kuo-Ping, 1994. "Capital-energy substitution and the multi-level CES production function," Energy Economics, Elsevier, vol. 16(1), pages 22-26, January.
  11. David L. Ryan & Yu Wang & Andre Plourde, 1996. "Asymmetric Price Responses of Residential Energy Demand in Ontario," Canadian Journal of Economics, Canadian Economics Association, vol. 29(s1), pages 317-23, April.
  12. Hansen, Bruce E., 1999. "Threshold effects in non-dynamic panels: Estimation, testing, and inference," Journal of Econometrics, Elsevier, vol. 93(2), pages 345-368, December.
  13. Javier F. Mory, 1993. "Oil Prices and Economic Activity: Is the Relationship Symmetric?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 151-162.
  14. Smyth, David J., 1993. "Energy prices and the aggregate production function," Energy Economics, Elsevier, vol. 15(2), pages 105-110, April.
  15. Severin Borenstein & A. Colin Cameron, 1992. "Do Gasoline Prices Respond Asymmetrically to Crude Oil Price Changes?," NBER Working Papers 4138, National Bureau of Economic Research, Inc.
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Cited by:
  1. Matteo Manera & Alessandro Cologni, 2005. "Oil Prices, Inflation and Interest Rates in a Structural Cointegrated VAR Model for the G-7 Countries," Working Papers 2005.101, Fondazione Eni Enrico Mattei.

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