Threshold Effects of Energy Price Changes

Jan Jacobs, Gerard Kuper and Daan van Soest

No 339, Econometric Society World Congress 2000 Contributed Papers from Econometric Society

Abstract: The effectiveness of policies to reduce the use of energy depend on the elasticity of substitution between the various inputs and on the rate of technological progress. This paper presents a theoretical model emphasising energy investments’ characteristics of uncertainty and irreversibility that result in hypotheses concerning the relative values of substitution parameters and rates of technological change in periods of high and increasing energy prices and in periods of low prices. The theoretical model suggests that threshold level effects exist. Firms are induced to substitute away from energy only if prices of energy exceed a certain threshold level and they reverse the technology only if prices are low enough. Using panel data for the Dutch economy we do not find threshold effects in the level of energy prices.

Date: 2000-08-01
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Related works:
Working Paper: Threshold effects of energy price changes (2000)
Working Paper: Threshold effects of energy price changes (2000)
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