Aggregation in Models with Quantity Constraints: The CES Aggregation Function
This paper is devoted to the problem of aggregation in models with quantity constraints. The focus is on quantity rationing macroeconomic (QRM) models where the micromarket outcome can be written as the minimum of several variables and where the diversity of situations across micromarkets is explicitly recognized. The aggregation result given in this paper generalizes that of Lambert (1988) to employment functions with more than two components, and leads to approximate aggregate functions of the CES variety. The approximation used can accomodate general variance-covariance structures. Simulation experiments show that the approximation error remains within reasonable bounds (1-4%). It thus seems that the CES formulation can accomodate a large variety of situations. It remains in particular valid when the (restrictive) conditions required to obtain the CES function as an exact result (independently identically distributed Weibull variables) are not satisfied.
|Date of creation:||01 Dec 1998|
|Date of revision:|
|Contact details of provider:|| Postal: |
Fax: +32 10473945
Web page: http://www.uclouvain.be/iresEmail:
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Fagnart, J.-Fr. & Licandro, O. & Sneessens, H. R., 1995.
"Capacity Utilization and Market Power,"
Discussion Papers (IRES - Institut de Recherches Economiques et Sociales)
1996006, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
- Charles T. Carlstrom & Timothy S. Fuerst, 1996.
"Agency costs, net worth, and business fluctuations: a computable general equilibrium analysis,"
9602, Federal Reserve Bank of Cleveland.
- Carlstrom, Charles T & Fuerst, Timothy S, 1997. "Agency Costs, Net Worth, and Business Fluctuations: A Computable General Equilibrium Analysis," American Economic Review, American Economic Association, vol. 87(5), pages 893-910, December.
- Eskil HEINESEN, 1994.
"CES Transaction Functions in Macroeconomic Rationing Models,"
Discussion Papers (REL - Recherches Economiques de Louvain)
1994032, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
- Eskil Heinesen, 1992. "CES Transaction Functions in Macroeconomic Rationing Models," Discussion Papers 92-07, University of Copenhagen. Department of Economics.
- Barro, Robert J & Grossman, Herschel I, 1971. "A General Disequilibrium Model of Income and Employment," American Economic Review, American Economic Association, vol. 61(1), pages 82-93, March.
- Heinesen, Eskil, 1995. "The two-variable CES transaction function in macroeconomic rationing models," Economics Letters, Elsevier, vol. 48(3-4), pages 257-265, June.
- Kahn, James A, 1987. "Inventories and the Volatility of Production," American Economic Review, American Economic Association, vol. 77(4), pages 667-79, September.
When requesting a correction, please mention this item's handle: RePEc:ctl:louvir:1999008. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Anne DAVISTER-LOGIST)
If references are entirely missing, you can add them using this form.