On Estimation of Deep Nested CES Production Functions
63 Pages Posted: 3 Oct 2018
Date Written: July 22, 2018
The constant elasticity of substitution (CES) function is an important function that is widely used in both theoretical analysis and applied economics. We propose a systematic framework to estimate the deep nested CES function using the nonlinear least squares (NLS) method. This method fills the gap between current empirical studies and large-scale applied economic models such as computable general equilibrium (CGE) models. We estimate the elasticities of substitution at both the regional and sectoral levels using this framework. The results indicate that some elasticities of substitution are larger than those in the existing literature. In addition, our results emphasize the heterogeneity of the elasticities of substitution across regions and sectors during application.
Keywords: Nested CES Function, Nonlinear Least Squares Estimation, Gradient Descent, Energy Substitution, Model Selection
JEL Classification: C13, C18, C52, Q43
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