Template-type: ReDIF-Paper 1.0
Author-Name: Antonia Díaz
Author-Email: andiaz@eco.uc3m.es
Author-Workplace-Name: Department of Economics, Universidad Carlos III de Madrid, 28093 Madrid, Spain
Author-Name: Luis A. Puch
Author-Email: puch@fedea.es
Author-Homepage: https://www.ucm.es/fundamentos-analisis-economico2/luis-a-puch
Author-Person: ppu1
Author-Workplace-Name: Departamento de Fundamentos del Análisis Económico II (Economía Cuantitativa) (Department of 
	Foundations of Economic Analysis II (Quantitative Economics)), Facultad de Ciencias Económicas y 
	Empresariales (Faculty of Economics and Business), Universidad Complutense de Madrid (Complutense University 
	of Madrid)
Author-Workplace-Homepage:
 https://www.ucm.es/fundamentos-analisis-economico2
Author-Workplace-Homepage:
 https://www.ucm.es/icae
Title:  A Theory of Vintage Capital Investment and Energy Use
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 energy-saving 
	technical change and, therefore, a substitute of energy eficiency: it rises the productivity of capital 
	without rising energy use, which increases effective energy eficiency (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 eficiency of the 
	economy (the capital-energy ratio), shielding the economy against the impact of the 2003-08 price shock.

Classification-JEL: E22, E23.
Keywords: Energy use, vintage capital, energy price shocks, investment-specific technology shocks.
Note: This paper was previously entitled “A Theory of Energy Use”. We thank Raouf Boucekkine for his comments to
	a first version of this paper. We also thank Fabrice Collard, Andrés Erosa, Cyril Monnet, Omar Licandro, Franck
	Portier and Jesús Ruiz for helpful comments, and Manuel García and Alberto Sánchez for excellent research assistance.
	Díaz, and Puch, thank respectively the Dirección General de Investigación, projects ECO2010-20614 and ECO2010-
	17943, for financial support, and the EUI for its support during part of this research. Puch also thanks Fundación
	FocusAbengoa and FEDEA. We are grateful to participants of conferences 2012 REDg, 2012 SED Meetings, 2011
	Wien Macro Workshop, as well as workshop participants at EUI.

Length: 48 pages 
Creation-Date: 2013-10  
Number: 2013-35 
X-File-Ref: http://america.sim.ucm.es/repec/ucm/ref/doicae1335.txt
File-URL: https://eprints.ucm.es/id/eprint/23330/1/1335.pdf
File-Format: Application/pdf
Handle: RePEc:ucm:doicae:1335