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

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Author Info

  • Adrian Peralta-Alva

    (University of Miami)

  • Sami Alpanda

    (University of Minnesota)

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 25% decline in market valuation; accounting for more than half of what is observed in the data.

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File URL: http://128.118.178.162/eps/mac/papers/0405/0405019.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0405019.

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Length: 25 pages
Date of creation: 18 May 2004
Date of revision:
Handle: RePEc:wpa:wuwpma:0405019

Note: Type of Document - pdf; pages: 25
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Web page: http://128.118.178.162

Related research

Keywords: Energy Saving Technological Change; Stock Market Collapse 1974 Tobin's q; Induced innovation;

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References

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Citations

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Cited by:
  1. William T. Gavin & Benjamin D. Keen & Finn E. Kydland, 2013. "Monetary policy, the tax code, and the real effects of energy shocks," Working Papers 2013-019, Federal Reserve Bank of St. Louis.
  2. Yazid Dissou & Lilia Karnizova & Qian Sun, 2012. "Industry-level Econometric Estimates of Energy-capital-labour Substitution with a Nested CES Production Function," Working Papers 1214E, University of Ottawa, Department of Economics.
  3. Finn E. Kydland & Fei Mao & William T. Gavin, 2011. "Monetary Policy, the Tax Code, and Energy Price Shocks," 2011 Meeting Papers 1160, Society for Economic Dynamics.
  4. Sami Alpanda & Gino Cateau & C├ęsaire Meh, 2014. "A Policy Model to Analyze Macroprudential Regulations and Monetary Policy," Working Papers 14-6, Bank of Canada.
  5. Gallegati, Marco & Ramsey, James B., 2013. "Structural change and phase variation: A re-examination of the q-model using wavelet exploratory analysis," Structural Change and Economic Dynamics, Elsevier, vol. 25(C), pages 60-73.
  6. Sami Alpanda & Uluc Aysun, 2010. "Bank globalization and the balance sheet channel of monetary transmission," Working papers 2010-20, University of Connecticut, Department of Economics.
  7. Takeshi Niizeki, 2012. "Energy-Saving Technological Change in Japan," Global COE Hi-Stat Discussion Paper Series gd11-218, Institute of Economic Research, Hitotsubashi University.
  8. Gallegati, Marco & Ramsey, James B., 2013. "Bond vs stock market's Q: Testing for stability across frequencies and over time," Journal of Empirical Finance, Elsevier, vol. 24(C), pages 138-150.

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