Oil crisis, Energy Saving Technological Change, and the Stock Market Collapse of 1974

Adrian Peralta-Alva (aperaltaalva@gmail.com) and Sami Alpanda

No 250, Econometric Society 2004 Latin American Meetings from Econometric Society

Abstract: The market value of U.S. corporations, relative to the replacement cost of their tangible assets, declined by about 50% in 1973-74, and stagnated at that level for the following decade. This collapse in market valuations exactly coincides with the Oil Crisis of October 1973. Over the 1973-78 period, the OPEC embargo translated into 44% increase in energy prices. This paper uses a calibrated dynamic general equilibrium model to quantitatively assess the impact of the energy price increase on the market value of U.S. corporations. In the model, energy-saving technologies are adopted as a response to an unexpected energy price shock. Investment in old, energy-intensive, technologies stops and their market value collapses. Our quantitative experiments match the share of energy in total costs, and the trends in the energy-output ratio of the U.S. economy. We find that the observed changes in energy prices can account for most of the observed drop in Tobin's average q

Keywords: Stock; market; collapse; energy; saving; technological; change (search for similar items in EconPapers)
JEL-codes: E44 O31 O41 (search for similar items in EconPapers)
Date: 2004-08-11
New Economics Papers: this item is included in nep-fin and nep-his
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Working Paper: Oil crisis, Energy Saving Technological Change, and the Stock Market Collapse of 1974 (2006)
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