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Energy price uncertainty, energy intensity and firm investment

  • Yoon, Kyung Hwan
  • Ratti, Ronald A.

This paper examines the effect of energy price uncertainty on firm-level investment. An error correction model of capital stock adjustment is estimated with data on U.S. manufacturing firms. Higher energy price uncertainty is found to make firms more cautious by reducing the responsiveness of investment to sales growth. The result is robust to consideration of energy intensity by industry. The effect is greater for high growth firms. It must be emphasized that the direct effect of uncertainty is not estimated. Conditional variance of energy price is obtained from a GARCH model. Findings suggest that stability in energy prices would be conducive to greater stability in firm-level investment.

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Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 33 (2011)
Issue (Month): 1 (January)
Pages: 67-78

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Handle: RePEc:eee:eneeco:v:33:y:2011:i:1:p:67-78
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