IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

A Theory of Vintage Capital Investment and Energy Use

In this paper we propose a theory of investment and energy use to study the response of macroeconomic aggregates to energy price shocks. In our theory this response depends on the interaction between the energy efficiency built in capital goods (which is irreversible throughout their lifetime) and the growth rate of Investment Specific Technological Change (ISTC hereafter). We show that ISTC is a sort of energy-saving technical change and, therefore, a substitute of energy eficiency: it rises the productivity of capital without rising energy use, which increases effective energy eficiency (i.e., the amount of energy use required per unit of quality-adjusted capital). Hence, our theory can account for the fall of energy use per unit of output observed during the 1990s, a period in which energy prices fell below trend. By increasing investment in the years of high ISTC growth, the economy was increasing the average eficiency of the economy (the capital-energy ratio), shielding the economy against the impact of the 2003-08 price shock.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico in its series Documentos de Trabajo del ICAE with number 2013-35.

in new window

Length: 48 pages
Date of creation: Oct 2013
Date of revision:
Handle: RePEc:ucm:doicae:1335
Note: This paper was previously entitled “A Theory of Energy Use”. We thank Raouf Boucekkine for his comments to a first version of this paper. We also thank Fabrice Collard, Andrés Erosa, Cyril Monnet, Omar Licandro, Franck Portier and Jesús Ruiz for helpful comments, and Manuel García and Alberto Sánchez for excellent research assistance. Díaz, and Puch, thank respectively the Dirección General de Investigación, projects ECO2010-20614 and ECO2010- 17943, for financial support, and the EUI for its support during part of this research. Puch also thanks Fundación FocusAbengoa and FEDEA. We are grateful to participants of conferences 2012 REDg, 2012 SED Meetings, 2011 Wien Macro Workshop, as well as workshop participants at EUI.
Contact details of provider: Phone: 913942604
Fax: 913942531
Web page:

More information through EDIRC

Order Information: Postal: Facultad de Ciencias Económicas y Empresariales. Pabellón prefabricado, 1ª Planta, ala norte. Campus de Somosaguas, 28223 - POZUELO DE ALARCÓN (MADRID)
Web: Email:

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.:

as in new window
  1. Greenwood, J. & Hercowitz, Z. & Krusell, P., 1996. "Long-Run Implications of Investment-Specific Technological Change," RCER Working Papers 420, University of Rochester - Center for Economic Research (RCER).
  2. Daron Acemoglu, 2001. "Directed Technical Change," NBER Working Papers 8287, National Bureau of Economic Research, Inc.
  3. Pindyck, Robert S & Rotemberg, Julio J, 1983. "Dynamic Factor Demands and the Effects of Energy Price Shocks," American Economic Review, American Economic Association, vol. 73(5), pages 1066-79, December.
  4. Pindyck, Robert S, 1979. "Interfuel Substitution and the Industrial Demand for Energy: An International Comparison," The Review of Economics and Statistics, MIT Press, vol. 61(2), pages 169-79, May.
  5. Gort, M. & Greenwood, J. & Rupert, P., 1998. "Measuring the Rate of Technological Progress in Structures," RCER Working Papers 457, University of Rochester - Center for Economic Research (RCER).
  6. Daron Acemoglu & Philippe Aghion & Leonardo Bursztyn & David Hemous, 2010. "The Environment and Directed Technical Change," Working Papers 2010.93, Fondazione Eni Enrico Mattei.
  7. Sato, Kazuo, 1976. "The Meaning and Measurement of the Real Value Added Index," The Review of Economics and Statistics, MIT Press, vol. 58(4), pages 434-42, November.
  8. Berndt, Ernst R & Wood, David O, 1975. "Technology, Prices, and the Derived Demand for Energy," The Review of Economics and Statistics, MIT Press, vol. 57(3), pages 259-68, August.
  9. Hassler, John & Krusell, Per & Olovsson, Conny, 2012. "Energy-Saving Technical Change," CEPR Discussion Papers 9177, C.E.P.R. Discussion Papers.
  10. Christopher R. Knittel, 2009. "Automobiles on Steroids: Product Attribute Trade-Offs and Technological Progress in the Automobile Sector," NBER Working Papers 15162, National Bureau of Economic Research, Inc.
  11. Antonia Díaz & Luis A. Puch & María D. Guilló, 2001. "Costly capital reallocation and energy use," Documentos de Trabajo del ICAE 0111, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
  12. Steinbuks, J. & Neuhoff, K., 2010. "Operational and Investment Response to Energy Prices in the OECD Manufacturing Sector," Cambridge Working Papers in Economics 1015, Faculty of Economics, University of Cambridge.
  13. Greenwood, J. & Hercowitz, Z. & Krusell, P., 1998. "The Role of Investment-Specific Technological Change in the Business Cycle," RCER Working Papers 449, University of Rochester - Center for Economic Research (RCER).
  14. 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.
  15. Edelstein Paul & Kilian Lutz, 2007. "The Response of Business Fixed Investment to Changes in Energy Prices: A Test of Some Hypotheses about the Transmission of Energy Price Shocks," The B.E. Journal of Macroeconomics, De Gruyter, vol. 7(1), pages 1-41, November.
  16. Justiniano, Alejandro & Primiceri, Giorgio E & Tambalotti, Andrea, 2009. "Investment Shocks and the Relative Price of Investment," CEPR Discussion Papers 7598, C.E.P.R. Discussion Papers.
  17. Robert J. Gordon, 1990. "The Measurement of Durable Goods Prices," NBER Books, National Bureau of Economic Research, Inc, number gord90-1, December.
  18. Lutz Kilian, 2008. "The Economic Effects of Energy Price Shocks," Journal of Economic Literature, American Economic Association, vol. 46(4), pages 871-909, December.
  19. Jonas D. M. Fisher, 2006. "The Dynamic Effects of Neutral and Investment-Specific Technology Shocks," Journal of Political Economy, University of Chicago Press, vol. 114(3), pages 413-451, June.
  20. Griffin, James M & Gregory, Paul R, 1976. "An Intercountry Translog Model of Energy Substitution Responses," American Economic Review, American Economic Association, vol. 66(5), pages 845-57, December.
  21. Richard G. Newell & Adam B. Jaffe & Robert N. Stavins, 1999. "The Induced Innovation Hypothesis and Energy-Saving Technological Change," The Quarterly Journal of Economics, Oxford University Press, vol. 114(3), pages 941-975.
  22. repec:ucp:bknber:9780226304557 is not listed on IDEAS
  23. Gilbert E. Metcalf, 2008. "An Empirical Analysis of Energy Intensity and Its Determinants at the State Level," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 1-26.
  24. Rodríguez-López, Jesús & Torres, José L., 2012. "Technological Sources Of Productivity Growth In Germany, Japan, And The United States," Macroeconomic Dynamics, Cambridge University Press, vol. 16(01), pages 133-150, February.
  25. David Popp, 2002. "Induced Innovation and Energy Prices," American Economic Review, American Economic Association, vol. 92(1), pages 160-180, March.
  26. Christiane Baumeister & Gert Peersman, 2013. "The Role Of Time‐Varying Price Elasticities In Accounting For Volatility Changes In The Crude Oil Market," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 28(7), pages 1087-1109, November.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ucm:doicae:1335. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Águeda González Abad)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.