CES function estimation using NLS

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londonphd
Posts: 37
Joined: Fri Oct 23, 2015 11:39 am

CES function estimation using NLS

Postby londonphd » Wed Dec 11, 2019 10:04 am

Hi,

I am trying to estimate the a set of two parameters of a CES function:

Code: Select all

Y = (((AL*L)^C(1)+(AK*K)^C(1))^(C(2)/C(1))+(AE*E)^C(2))^(1/C(2))


The iteration stops abruptly due to division by 0. Can I limit the range of parameters to non-zero values?
I used the

Code: Select all

param
function to set starting values, but it has not helped.

thank you.

EViews Gareth
Fe ddaethom, fe welon, fe amcangyfrifon
Posts: 12637
Joined: Tue Sep 16, 2008 5:38 pm

Re: CES function estimation using NLS

Postby EViews Gareth » Wed Dec 11, 2019 10:25 am

take logs?
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startz
Non-normality and collinearity are NOT problems!
Posts: 3605
Joined: Wed Sep 17, 2008 2:25 pm

Re: CES function estimation using NLS

Postby startz » Wed Dec 11, 2019 10:36 am

You can also replace the coefficient c(i) with exp(c(i)). That guarantees that exp(c(i)) will be positive.

tvonbrasch
Posts: 442
Joined: Fri Apr 15, 2011 5:35 am

Re: CES function estimation using NLS

Postby tvonbrasch » Wed Dec 11, 2019 11:43 pm

this article may also be of interest
t
Attachments
Henningsen, Henningsen - 2012 - On estimation of the CES production function—Revisited.pdf
(237.71 KiB) Downloaded 109 times

londonphd
Posts: 37
Joined: Fri Oct 23, 2015 11:39 am

Re: CES function estimation using NLS

Postby londonphd » Fri Dec 13, 2019 3:11 am

EViews Gareth wrote:take logs?


Many thanks.
How will I type in the log of the CES function (((al*l)^c(1)+(ak*k)^c(1))^(c(2)/c(1))+(ae*e)^c(2)) ?
Thank you.

Elderfield.A
Posts: 41
Joined: Thu Jul 11, 2019 10:47 pm

Re: CES function estimation using NLS

Postby Elderfield.A » Wed Dec 18, 2019 3:39 pm

You can restrict the parameters as you like, see for example this post:

viewtopic.php?t=12122


The authors of the paper provided by @tvonbrasch also have an R package called micEconCES which offers some insights into how one estimates the production function directly using NLS.


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