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

  • Sami Alpanda

    (Department of Economics, Amherst College)

  • Adrian Peralta-Alva

    ()

    (Department of Economics, University of Miami)

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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File URL: http://moya.bus.miami.edu/~aperalta/research/energy06.pdf
File Function: Revised version, 2006
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Paper provided by University of Miami, Department of Economics in its series Working Papers with number 0604.

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Length: 27 pages
Date of creation: 01 Nov 2003
Date of revision: Dec 2006
Publication status: Forthcoming: Under Review
Handle: RePEc:mia:wpaper:0604
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Web page: http://www.bus.miami.edu/faculty-and-research/academic-departments/economics/index.html

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