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

  • Adrian Peralta-Alva

    (University of Miami)

  • Sami Alpanda

    (University of Minnesota)

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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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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