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By Robert S. Chirinko, Debdulal Mallick, Stephen Bond, Hashem Dezhbakhsh, John Fernald, Simon Gilchrist, Nazrul Islam, Christian Murray, Franz Palm, Kevin Stiroh, John Van Reenen and Dan Wilson

Abstract

thoughtful comments on a prior draft. Dale Jorgenson has generously made his dataset available to us. Financial assistance from Emory University’s ICIS Research and Program Fund and the Graduate School is gratefully acknowledged. All errors, omissions, and conclusions remain the sole responsibility of the authors. The Substitution Elasticity, Growth Theory, And The Low-Pass Filter Panel Model The elasticity of substitution between labor and capital (σ) is a crucial parameter in growth theory. A host of important issues, including the possibility of perpetual growth or decline, depend on the precise value of σ. This paper examines the role of σ in the neoclassical growth model and estimates σ by combining a low-pass filter with standard panel data techniques to identify the long-run relations appropriate to production function estimation. Our approach is in the spirit of Friedman's permanent income theory of consumption and Eisner's related permanent income theory of investment. While their approaches and ours are similar in relying on permanent components, we extract these components wit

Year: 2007
OAI identifier: oai:CiteSeerX.psu:10.1.1.415.2105
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