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

This file is part of IDEAS, which uses RePEc data

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

Author Info

Adrian Peralta Alva (Dept of Economics University of Minnesota)
Sami Alpanda (Dept of Economics University of Minnesota)

Additional information is available for the following registered author(s):

Adrian Peralta-Alva

Abstract

The market value of U.S. corporations, relative to the replacement cost of their tangible assets, declined by about 50% in 1973-74, and stagnated at that level for the following decade. This collapse in market valuations exactly coincides with the Oil Crisis of October 1973. Over the 1973-78 period, the OPEC embargo translated into 44% increase in energy prices. This paper uses a calibrated dynamic general equilibrium model to quantitatively assess the impact of the energy price increase on the market valuation of U.S. corporations. The key features of the model are the technology-specific nature of capital, the irreversibility of investment decisions, and the induced innovation hypothesis. In the model, the arrival of a new energy-saving technology coincides with the increase in energy prices; rendering old capital obsolete, and its market value to collapse. In the data, the number of patents granted to enery-saving technologies increased in the mid 1970's, which gives empirical support to the induced innovation hypothesis. We find the observed changes in energy prices, together with the energy saving change implied in the observed energy output data, generate an 17% drop in Tobin's q; slightly more than a third of what is observed in the data.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help file. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

Publisher Info
Paper provided by EconWPA in its series Macroeconomics with number 0307007.

Download reference. The following formats are available: HTML, plain text, BibTeX, RIS (EndNote), ReDIF
Length:
Date of creation: 14 Jul 2003
Date of revision:
Handle: RePEc:wpa:wuwpma:0307007

Note: Type of Document - PDF; prepared on IBM PC - PC-TEX/UNIX Sparc TeX; to print on PS
Contact details of provider:
Web page: http://129.3.20.41

For technical questions regarding this item, or to correct its listing, contact: (EconWPA).

Other versions of this item:

Paper
- Adrian Peralta-Alva & Sami Alpanda, 2006. "Oil crisis, Energy Saving Technological Change, and the Stock Market Collapse of 1974," Computing in Economics and Finance 2006 49, Society for Computational Economics. [Downloadable!]
- Adrian Peralta-Alva (Presenter) & Sami Alpanda, 2004. "Oil crisis, Energy Saving Technological Change, and the Stock Market Collapse of 1974," Econometric Society 2004 Latin American Meetings 250, Econometric Society. [Downloadable!]

Find related papers by JEL classification:
E - Macroeconomics and Monetary Economics

This paper has been announced in the following NEP Reports:

NEP-INO-2003-07-21 (Innovation)

This item is featured on the following reading lists:

Technology Assessment

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Ellen R. McGrattan & Edward C. Prescott, 2005. "Taxes, regulations, and the value of U.S. and U.K. corporations," Staff Report 309, Federal Reserve Bank of Minneapolis. [Downloadable!]
Other versions:
- Ellen R. McGrattan & Edward C. Prescott, 2004. "Taxes, Regulations, and the Value of U.S. and U.K. Corporations," Levine's Bibliography 122247000000000715, UCLA Department of Economics. [Downloadable!]
- Ellen R. McGrattan & Edward C. Prescott, 2005. "Taxes, Regulations, and the Value of U.S. and U.K. Corporations," Review of Economic Studies, Blackwell Publishing, vol. 72(3), pages 767-796, 07. [Downloadable!] (restricted)
Kim, In-Moo & Loungani, Prakash, 1992. "The role of energy in real business cycle models," Journal of Monetary Economics, Elsevier, vol. 29(2), pages 173-189, April. [Downloadable!] (restricted)
Other versions:
- In-Moo Kim & Prakash Loungani, 1991. "The role of energy in real business cycle models," Working Paper Series, Macroeconomic Issues 91-6, Federal Reserve Bank of Chicago.
Yongsung Chang & Joao Gomes & Frank Schorfheide, 2002. "Learning by Doing as a Propagation Mechanism," Macroeconomics 0204002, EconWPA. [Downloadable!]
Other versions:
- Chang, Yongsung & Gomes, Joao F & Schorfheide, Frank, 2002. "Learning by Doing as a Propagation Mechanism," CEPR Discussion Papers 3599, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
- Yongsung Chang & Joao F. Gomes & Frank Schorfheide, 2002. "Learning-by-Doing as a Propagation Mechanism," American Economic Review, American Economic Association, vol. 92(5), pages 1498-1520, December. [Downloadable!] (restricted)
Jeremy Greenwood & Boyan Jovanovic, 1999. "The Information-Technology Revolution and the Stock Market," American Economic Review, American Economic Association, vol. 89(2), pages 116-122, May. [Downloadable!] (restricted)
Robert E. Hall, 2001. "The Stock Market and Capital Accumulation," American Economic Review, American Economic Association, vol. 91(5), pages 1185-1202, December. [Downloadable!] (restricted)
Other versions:
- Robert E. Hall, 1999. "The Stock Market and Capital Accumulation," NBER Working Papers 7180, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
- Robert E. Hall, 2000. "The stock market and capital accumulation," Proceedings, Federal Reserve Bank of San Francisco, issue Apr. [Downloadable!]
Boldrin, Michele & Levine, David K., 2001. "Growth Cycles and Market Crashes," Journal of Economic Theory, Elsevier, vol. 96(1-2), pages 13-39, January. [Downloadable!] (restricted)
Other versions:
- Michele Boldrin & David K. Levine, 1999. "Growth Cycles and Market Crashes," Levine's Working Paper Archive 2028, UCLA Department of Economics. [Downloadable!]
- Michele Boldrin & David K. Levine, 2000. "Growth cycles and market crashes," Staff Report 279, Federal Reserve Bank of Minneapolis. [Downloadable!]
Bahk, Byong-Hong & Gort, Michael, 1993. "Decomposing Learning by Doing in New Plants," Journal of Political Economy, University of Chicago Press, vol. 101(4), pages 561-83, August. [Downloadable!] (restricted)
Arrow, Kenneth J & Kurz, Mordecai, 1970. "Optimal Growth with Irreversible Investment in a Ramsey Model," Econometrica, Econometric Society, vol. 38(2), pages 331-44, March. [Downloadable!] (restricted)
John Laitner & Dmitriy Stolyarov, 2003. "Technological Change and the Stock Market," American Economic Review, American Economic Association, vol. 93(4), pages 1240-1267, September. [Downloadable!] (restricted)
Chao Wei, 2003. "Energy, the Stock Market, and the Putty-Clay Investment Model," American Economic Review, American Economic Association, vol. 93(1), pages 311-323, March. [Downloadable!] (restricted)
Olson, Lars J., 1989. "Stochastic growth with irreversible investment," Journal of Economic Theory, Elsevier, vol. 47(1), pages 101-129, February. [Downloadable!] (restricted)
Andrew Atkeson & Patrick J. Kehoe, 1999. "Models of Energy Use: Putty-Putty versus Putty-Clay," American Economic Review, American Economic Association, vol. 89(4), pages 1028-1043, September. [Downloadable!] (restricted)
Other versions:
- Andrew Atkeson & Patrick J. Kehoe, 1994. "Models of Energy Use: Putty-Putty versus Putty-Clay," NBER Working Papers 4833, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Peter Klenow, 1998. "Learning Curves and the Cyclical Behavior of Manufacturing Industries," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(2), pages 531-550, April. [Downloadable!] (restricted)
David Popp, 2002. "Induced Innovation and Energy Prices," American Economic Review, American Economic Association, vol. 92(1), pages 160-180, March. [Downloadable!] (restricted)
Brock, William A. & Mirman, Leonard J., 1972. "Optimal economic growth and uncertainty: The discounted case," Journal of Economic Theory, Elsevier, vol. 4(3), pages 479-513, June. [Downloadable!] (restricted)
Greenwood, J. & Jovanovic, B., 1999. "The IT Revolution and the Stock Market," RCER Working Papers 460, University of Rochester - Center for Economic Research (RCER). [Downloadable!]
Other versions:
- Greenwood, J. & Jovanovic, B., 1999. "The IT Revolution and the Stock Market," Working Papers 99-02, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
- Jeremy Greenwood & Boyan Jovanovic, 1999. "The IT Revolution and the Stock Market," NBER Working Papers 6931, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Stephen L. Parente, 2000. "Learning-by-Using and the Switch to Better Machines," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(4), pages 675-703, October. [Downloadable!] (restricted)
Robert E. Hall, 2001. "Struggling to Understand the Stock Market," American Economic Review, American Economic Association, vol. 91(2), pages 1-11, May. [Downloadable!] (restricted)

Full references

Statistics
Access and download statistics

Did you know? There is a FAQ (frequently asked questions).

This page was last updated on 2008-10-3.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.