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Oil crisis, Energy Saving Technological Change, and the Stock Market Collapse of 1974

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  • Adrian Peralta-Alva

    ()
    (Department of Economics University of Miami)

  • Sami Alpanda

    (Amherst College)

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 neoclassical 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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Bibliographic Info

Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2006 with number 49.

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Date of creation: 04 Jul 2006
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Handle: RePEc:sce:scecfa:49

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Keywords: Stock Market; Energy Prices; Tobin's q;

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