Estimation of Structural Change and Adaptive Behavior of a Commodity Industry Subject to Random Energy Price Fluctuations

Abstract

The energy price shock of eight years ago has had time to work its way through many energy intensive industries. This paper postulates that the response to the petroleum cartel pricing policy by the U.S. steel scrap industry was a rapid dynamic increase of the elasticity of scrap output relative to energy inputs. Time series data from this industry is used to estimate dynamic models of the monthly fractional change of its energy elasticity before and after the petroleum cartel. A comparison of the resultant before and after model spectral densities provides evidence that the gradual increase of output per unit energy input seen in this industry since the cartel has been an efficiency reflected by an increase in its energy elasticity.