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Supply-side effects of strong energy price hikes in German industry and transportation

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  • Thomas Knetsch

  • Alexander Molzahn

Abstract

This article studies the short-term effects of energy price hikes on the supply of industrial goods and transport services including the repercussions on remuneration of input factors. The empirical analysis is based on a theoretical model, which assumes that the output good is produced by capital, labour and energy according to a nested production function framework where capital and energy are combined by a CES function at the intermediate stage. The output responses to energy price changes are derived, using estimates of the elasticity of substitution. While industry suffered more from the oil price shock of the late 1970s than from that of the early 1970s and the 2004–2008 upsurge, evidence suggests the reverse for transportation. Regarding the impact on income distribution, both sectors share the same pattern, whereby in the recent episode, rising energy costs were more than compensated by falling unit labour costs, while in the 1970s, cost structures had been strained by an expansive wage policy in addition to the oil price shocks. Copyright Springer-Verlag 2012

Suggested Citation

  • Thomas Knetsch & Alexander Molzahn, 2012. "Supply-side effects of strong energy price hikes in German industry and transportation," Empirical Economics, Springer, vol. 43(3), pages 1215-1238, December.
    • Handle: RePEc:spr:empeco:v:43:y:2012:i:3:p:1215-1238
    DOI: 10.1007/s00181-011-0515-7
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    Keywords

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    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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