An Assessment of CES and Cobb-Douglas Production Functions: Working Paper 2008-05
This paper surveys the empirical and theoretical literature on macroeconomic production functions and assesses whether the constant elasticity of substitution (CES) or the Cobb-Douglas specification is more appropriate for use in the CBO’s macroeconomic forecasts. The Cobb-Douglas’s major strengths are its ease of use and its seemingly good empirical fit across many data sets. Unfortunately, the Cobb-Douglas still fits the data well in cases where some of its fundamental assumptions are violated. This suggests that many empirical tests of the Cobb-Douglas are picking up a statistical artifact
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- Klump, Rainer & McAdam, Peter & Willman, Alpo, 2008. "Unwrapping some euro area growth puzzles: Factor substitution, productivity and unemployment," Journal of Macroeconomics, Elsevier, vol. 30(2), pages 645-666, June.
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136, Massachusetts Institute of Technology (MIT), Department of Economics.
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- I Fraser, 2002. "The Cobb-Douglas Production Function: An Antipodean Defence?," Economic Issues Journal Articles, Economic Issues, vol. 7(1), pages 39-58, March.
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