IDEAS home Printed from https://ideas.repec.org/p/sce/scecf4/268.html
   My bibliography  Save this paper

Perturbed Polynomial Path Method For Accurately Computing And Empirically Evaluating Total Factor Productivity

Author

Listed:
  • Baoline Chen
  • Peter A. Zadrozny

Abstract

The paper describes and illustrates a method for generalizing the standard computation of period-to-period percentage change of total factor productivity (TFP) to computation of TFP based on a best k-times-differentiable model. A "model" is a k-times-differentiable functional form of a production function, f(×), a parameterization of f(×) over a data sample, and values of constant structural parameters which determine f(×) in the sample. Given f(×) and sample input price and quantity vectors, we use the perturbed polynomial path method to compute the optimal input vector. Thus, a given model and input data imply input residuals (difference between optimal and observed inputs), and hence, –2x a normal-distribution log-likelihood function, L, or information criterion extension to account for parameter uncertainty. A model and its implied TFP are statistically reliable when L is finite and are "best" when L is minimized. The standard Solow-residual TFP is based on 1st-order Cobb-Douglas-type approximation of any differentiable production function and share parameters set to input-cost shares, implying observed inputs are always optimal, degrees of freedom are exhausted, so the model and implied TFP have no statistical reliability. In the paper, we illustrate these ideas using U.S. manufacturing industry data from 1949-2001. We develop models based on CES and tiered-CES production functions and compare their implied TFP with benchmark Solow residuals.

Suggested Citation

  • Baoline Chen & Peter A. Zadrozny, 2004. "Perturbed Polynomial Path Method For Accurately Computing And Empirically Evaluating Total Factor Productivity," Computing in Economics and Finance 2004 268, Society for Computational Economics.
  • Handle: RePEc:sce:scecf4:268
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    More about this item

    Keywords

    Purterbation methods; Computing productivity index numbers;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sce:scecf4:268. 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: (Christopher F. Baum). General contact details of provider: http://edirc.repec.org/data/sceeeea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.