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Oil Crisis, Energy-Saving Technological Change and the Stock Market Crash of 1973-74

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Author Info
Alpanda, Sami
Peralta-Alva, Adrian

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Abstract

The market value of U.S. corporations was nearly halved following the oil crisis of October 1973. Real energy prices more than doubled by the end of the decade, increasing energy costs and spurring innovation in energy-saving technologies by corporations. This paper uses a neo-classical growth model to quantify the impact of the increase in energy prices on the market value of U.S. corporations. In the model, corporations adopt energy-saving technologies as a response to the energy price shock and the price of installed capital falls due to investment irreversibility. The model calibrated to match the subsequent decline in energy consumption in the U.S. generates a 24% decline in market valuation - accounting for nearly half of what is observed in the data.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 5896.

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Date of creation: Aug 2007
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Handle: RePEc:pra:mprapa:5896

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Related research
Keywords: oil crisis stock market crash technological change

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Find related papers by JEL classification:
C68 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Computable General Equilibrium Models
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
O31 - Economic Development, Technological Change, and Growth - - Technological Change - - - Innovation and Invention: Processes and Incentives
Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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