Energy Efficient Technology and Vintage Capital in Chinese Industry
52 Pages Posted: 24 Mar 2020 Last revised: 29 Jun 2022
Date Written: February 20, 2020
Abstract
The most widely used method for analyzing and measuring the impact of energy prices on energy
consumption at the firm level is to formulate reduced form equations from which estimates are derived of the impact of prices on energy intensity. As reduced form systems, the key drawback of this conventional approach is that they provide a “black box” interpretation of the energy price-intensity relationship without identifying or calibrating the channels, or the magnitudes of such channels, through which the price effects matter. This shortcoming is particularly serious for a country like China that has a variety of ownership types that operate under different public policy regimes. To remedy this shortcoming, this paper formulates a structural model in the form of a dynamic stochastic general equilibrium (DSGE) model that incorporates a range of technology avenues – both embodied and disembodied – for achieving energy-savings in response to rising energy prices. Employing Chinese firm-level data, the paper estimates a set of reduced form models from which it derives by indirect inference estimation the key parameters in the DSGE model to test the ability of the structural model to replicate the key stylized facts based on the firm-level data.
Keywords: energy price, putty-clay investment, vintage capital, embodied technology, disembodied technology, China
JEL Classification: Q3, P2, E22
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