## 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

Hi,

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

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`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

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

thank you.

EViews Gareth
Fe ddaethom, fe welon, fe amcangyfrifon
Posts: 12540
Joined: Tue Sep 16, 2008 5:38 pm

### Re: CES function estimation using NLS

take logs?

startz
Non-normality and collinearity are NOT problems!
Posts: 3573
Joined: Wed Sep 17, 2008 2:25 pm

### Re: CES function estimation using NLS

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

tvonbrasch
Posts: 429
Joined: Fri Apr 15, 2011 5:35 am

### Re: CES function estimation using NLS

t
Attachments
Henningsen, Henningsen - 2012 - On estimation of the CES production function—Revisited.pdf

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

### Re: CES function estimation using NLS

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

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.