Which nesting structure for the CES? A new selection approach based on input separability

Elena Lagomarsino

doi:10.1016/j.econmod.2021.105562

Which nesting structure for the CES? A new selection approach based on input separability

Elena Lagomarsino^*

^*Corresponding author for this work

School of Social Sciences

Research output: Contribution to journal › Article › peer-review

Abstract

Nested CES production functions are very popular in economic applications, but their empirical validity has been questioned. In this paper, we outline a simple method that can be used to test whether a given dataset is consistent with a CES production technology and that informs on which nesting structure describes it more closely. The method is based on empirical testing input separability conditions, derived for all the feasible 3-input and 4-input nested CES. A Monte Carlo simulation environment is exploited to assess the accuracy of the test.

Original language	English
Article number	105562
Journal	Economic Modelling
Volume	102
Early online date	4 Jun 2021
DOIs	https://doi.org/10.1016/j.econmod.2021.105562
Publication status	Published - Sept 2021

Keywords

Input separability
Nested CES
Nesting structures
Production function
Taylor approximation
Translog

ASJC Scopus subject areas

Economics and Econometrics

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10.1016/j.econmod.2021.105562

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title = "Which nesting structure for the CES? A new selection approach based on input separability",

abstract = "Nested CES production functions are very popular in economic applications, but their empirical validity has been questioned. In this paper, we outline a simple method that can be used to test whether a given dataset is consistent with a CES production technology and that informs on which nesting structure describes it more closely. The method is based on empirical testing input separability conditions, derived for all the feasible 3-input and 4-input nested CES. A Monte Carlo simulation environment is exploited to assess the accuracy of the test.",

keywords = "Input separability, Nested CES, Nesting structures, Production function, Taylor approximation, Translog",

author = "Elena Lagomarsino",

note = "Funding Information: The author declare that she have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper. Publisher Copyright: {\textcopyright} 2021 Elsevier B.V.",

year = "2021",

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N1 - Funding Information: The author declare that she have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper. Publisher Copyright: © 2021 Elsevier B.V.

PY - 2021/9

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N2 - Nested CES production functions are very popular in economic applications, but their empirical validity has been questioned. In this paper, we outline a simple method that can be used to test whether a given dataset is consistent with a CES production technology and that informs on which nesting structure describes it more closely. The method is based on empirical testing input separability conditions, derived for all the feasible 3-input and 4-input nested CES. A Monte Carlo simulation environment is exploited to assess the accuracy of the test.

AB - Nested CES production functions are very popular in economic applications, but their empirical validity has been questioned. In this paper, we outline a simple method that can be used to test whether a given dataset is consistent with a CES production technology and that informs on which nesting structure describes it more closely. The method is based on empirical testing input separability conditions, derived for all the feasible 3-input and 4-input nested CES. A Monte Carlo simulation environment is exploited to assess the accuracy of the test.

KW - Input separability

KW - Nested CES

KW - Nesting structures

KW - Production function

KW - Taylor approximation

KW - Translog

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SN - 0264-9993

VL - 102

JO - Economic Modelling

JF - Economic Modelling

M1 - 105562

ER -

Which nesting structure for the CES? A new selection approach based on input separability

Abstract

Keywords

ASJC Scopus subject areas

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