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Threshold Effects of Energy Price Changes

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Author Info
Jan Jacobs (University of Groningen)
Gerard H. Kuper (University of Groningen)
Daan P. van Soest (Tilburg University)

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Abstract

The effectiveness of policies to reduce the use of energy depend on the elasticity of substitution between the various inputs and on the rate of technological progress. This paper presents a theoretical model emphasising energy investments’ characteristics of uncertainty and irreversibility that result in hypotheses concerning the relative values of substitution parameters and rates of technological change in periods of high and increasing energy prices and in periods of low prices. The theoretical model suggests that threshold level effects exist. Firms are induced to substitute away from energy only if prices of energy exceed a certain threshold level and they reverse the technology only if prices are low enough. Using panel data for the Dutch economy we do not find threshold effects in the level of energy prices.

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Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 0339.

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Date of creation: 01 Aug 2000
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Handle: RePEc:ecm:wc2000:0339

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  1. Peter Ferderer, J., 1996. "Oil price volatility and the macroeconomy," Journal of Macroeconomics, Elsevier, vol. 18(1), pages 1-26. [Downloadable!] (restricted)
  2. 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. [Downloadable!] (restricted)
  3. Bruce E. Hansen, 1997. "Threshold effects in non-dynamic panels: Estimation, testing and inference," Boston College Working Papers in Economics 365, Boston College Department of Economics. [Downloadable!]
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  4. Javier F. Mory, 1993. "Oil Prices and Economic Activity: Is the Relationship Symmetric?," The Energy Journal, International Association for Energy Economics, vol. 14(4), pages 151-162.
  5. 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. [Downloadable!] (restricted)
  6. 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.
  7. 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. 15(4), pages 19-36.
  8. Pindyck, Robert S., 1990. "Irreversibility, uncertainty, and investment," Working papers 3137-90., Massachusetts Institute of Technology (MIT), Sloan School of Management. [Downloadable!]
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  9. 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. [Downloadable!] (restricted)
  10. Borenstein, Severin & Cameron, A Colin & Gilbert, Richard, 1997. "Do Gasoline Prices Respond Asymmetrically to Crude Oil Price Changes?," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 305-39, February.
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  11. Chang, Kuo-Ping, 1994. "Capital-energy substitution and the multi-level CES production function," Energy Economics, Elsevier, vol. 16(1), pages 22-26, January. [Downloadable!] (restricted)
  12. 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. 14(1), pages 33-56.
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