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Econometric Estimation of the “Constant Elasticity of Substitution" Function in R: Package micEconCES

  • Arne Henningsen

    ()

    (Institute of Food and Resource Economics, University of Copenhagen)

  • Géraldine Henningsen

    ()

    (Risø National Laboratory for Sustainable Energy, Technical University of Denmark)

The Constant Elasticity of Substitution (CES) function is popular in several areas of economics, but it is rarely used in econometric analysis because it cannot be estimated by standard linear regression techniques. We discuss several existing approaches and propose a new grid-search approach for estimating the traditional CES function with two inputs as well as nested CES functions with three and four inputs. Furthermore, we demonstrate how these approaches can be applied in R using the add-on package micEconCES and we describe how the various estimation approaches are implemented in the micEconCES package. Finally, we illustrate the usage of this package by replicating some estimations of CES functions that are reported in the literature.

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File URL: http://okonomi.foi.dk/workingpapers/WPpdf/WP2011/WP_2011_9_econometric_estimation_CES.pdf
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Paper provided by University of Copenhagen, Department of Food and Resource Economics in its series IFRO Working Paper with number 2011/9.

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Length: 107 pages
Date of creation: Jun 2011
Date of revision:
Handle: RePEc:foi:wpaper:2011_9
Contact details of provider: Web page: http://www.ifro.ku.dk/english/
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  1. Chris Papageorgiou & Marianne Saam, 2008. "Two-level CES Production Technology in the Solow and Diamond Growth Models," Scandinavian Journal of Economics, Wiley Blackwell, vol. 110(1), pages 119-143, 03.
  2. Mullen, Katharine M. & Ardia, David & Gil, David L. & Windover, Donald & Cline, James, 2009. "DEoptim: An R Package for Global Optimization by Differential Evolution," MPRA Paper 21743, University Library of Munich, Germany, revised 26 Dec 2010.
  3. Winford H. Masanjala & Chris Papageorgiou, 2004. "The Solow model with CES technology: nonlinearities and parameter heterogeneity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(2), pages 171-201.
  4. Mishra, SK, 2006. "A Note on Numerical Estimation of Sato’s Two-Level CES Production Function," MPRA Paper 1019, University Library of Munich, Germany, revised 02 Dec 2006.
  5. León-Ledesma, Miguel A. & McAdam, Peter & Willman, Alpo, 2009. "Identifying the elasticity of substitution with biased technical change," Working Paper Series 1001, European Central Bank.
  6. Rainer Klump & Peter McAdam & Alpo Willman, 2007. "Factor Substitution and Factor-Augmenting Technical Progress in the United States: A Normalized Supply-Side System Approach," The Review of Economics and Statistics, MIT Press, vol. 89(1), pages 183-192, February.
  7. Klump, Rainer & Papageorgiou, Chris, 2008. "Editorial introduction The CES production function in the theory and empirics of economic growth," Journal of Macroeconomics, Elsevier, vol. 30(2), pages 599-600, June.
  8. Richard Anderson & William Greene & B. D. McCullough & H. D. Vinod, 2008. "The role of data/code archives in the future of economic research," Journal of Economic Methodology, Taylor & Francis Journals, vol. 15(1), pages 99-119.
  9. Pandey, Manish, 2008. "Human capital aggregation and relative wages across countries," Journal of Macroeconomics, Elsevier, vol. 30(4), pages 1587-1601, December.
  10. Arne Henningsen & Jeff D. Hamann, . "systemfit: A Package for Estimating Systems of Simultaneous Equations in R," Journal of Statistical Software, American Statistical Association, vol. 23(i04).
  11. Kemfert, Claudia, 1998. "Estimated substitution elasticities of a nested CES production function approach for Germany," Energy Economics, Elsevier, vol. 20(3), pages 249-264, June.
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