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| Author: | Wei, C. |
| Title: | Energy, the Stock Market, and the Putty-Clay Investment Model |
| Journal: | American Economic Review
2003 : MAR, VOL. 93:1, p. 311-323 |
| Index terms: | STOCK MARKETS INVESTMENT ECONOMICS ANALYTICAL REVIEW |
| Language: | eng |
| Abstract: | This paper adapts the putty-clay model developed by Simon Gilchnst and John C. Williams (2000) to include energy as a factor of production. The author takes the production technology ex ante to be Cobb-Douglas with constant returns to scale, but for capital goods already installed, production possibilities take the Leontief form: there is no substitutability of capital, energy, and labor ex post. An energy price shock affects the market value of firms through three channels. The model has generated movements of the real wage, income, and consumption in the right direction and of comparable magnitude to those observed in the data. The fact that the real wage did decline by the amount implied by the model lends credibility to the analysis. |
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