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

Author

Listed:
  • Adrian Peralta-Alva

    (University of Miami)

  • Sami Alpanda

    (University of Minnesota)

Abstract

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.

Suggested Citation

  • Adrian Peralta-Alva & Sami Alpanda, 2004. "Oil Crisis, Energy-Saving Technological Change and the Stock Market Crash of 1973-74," Macroeconomics 0405019, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpma:0405019
    Note: Type of Document - pdf; pages: 25
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    References listed on IDEAS

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    More about this item

    Keywords

    Energy Saving Technological Change; Stock Market Collapse 1974 Tobin's q; Induced innovation;
    All these keywords.

    JEL classification:

    • O - Economic Development, Innovation, Technological Change, and Growth

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    This paper has been announced in the following NEP Reports:

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