This paper analyzes the important, yet often ignored, link between capital adjustment and the choice of fuels used by manufacturing firms. A novel econometric framework, which explicitly incorporates heterogeneous fuel-using capital stocks in the estimation of optimal fuel choice, is applied to a large panel of Irish manufacturing firms. The econometric estimates show a significant variation in the optimal response of capital to changing fuel prices across different fuel-using technologies. For all the technologies, significant costs to capital adjustment are found. The costs are much larger compared with earlier estimates of adjustment costs based on lagged values of output and fuel prices. The findings imply that the path to full adjustment of capital stocks in response to changing fuel prices may be much longer than was previously thought.
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Автор
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Дата подготовки документа
2016/10/11
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Тип документа
Рабочий документ в рамках исследования вопросов политики
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Номер отчета
WPS7857
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Том
1
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Total Volume(s)
1
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Страна
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Регион
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Дата раскрытия информации
2016/10/11
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Disclosure Status
Disclosed
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Название документа
Capital adjustment and the optimal fuel choice
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Ключевые слова
capital stock;adjustment cost;stock of capital;capital adjustment;Environment & Energy;machinery and equipment;types of capital;Electricity;choice of fuel;investment response;interfuel substitution;types of fuel;development research group;integrated assessment models;factor of production;labor and materials;price of coal;demand for capital;electricity and gas;speed of adjustment;fuel price;price of oil;price of fuel;demand for energy;average oil price;aggregate capital stock;price of capital;Computable General Equilibrium;market cost;price elasticity estimate;estimation of equation;elasticity of demand;panel data model;social research institute;output growth rate;exogenous technological progress;types of energy;long run elasticity;capital depreciation rate;aggregate energy consumption;basic descriptive statistic;Energy & Environment;adjustment cost parameter;transmission and distribution;demand for electricity;adjustment cost function;heavy fuel oil;higher consumption levels;partial adjustment model;elasticity of substitution;quantity of fuel;light fuel oil;measurement error;
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