A theory of vintage capital investment and energy use

Luis Puch
Authors registered in the RePEc Author Service: Antonia Díaz

UC3M Working papers. Economics from Universidad Carlos III de Madrid. Departamento de Economía

Abstract: 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 energysaving technical change and, therefore, a substitute of energy efficiency: it rises the productivity of capital without rising energy use, which increases effective energy efficiency (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 efficiency of the economy (the capital-energy ratio), shielding the economy against the impact of the 2003-08 price shock.

Keywords: Energy; use; Vintage; capital; Energy; price; shocks; Investment-specific; technology; shocks (search for similar items in EconPapers)
JEL-codes: E22 E23 (search for similar items in EconPapers)
Date: 2013-12
New Economics Papers: this item is included in nep-dge, nep-ene and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Working Paper: A Theory of Vintage Capital Investment and Energy Use (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:cte:werepe:we1320

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