The Fisher/Cobb-Douglas Paradox, Factor Shares, and Cointegration

Bob Chirinko and Debdulal Mallick

No 1998, CESifo Working Paper Series from CESifo

Abstract: This note uses insights from cointegration analysis to reexamine two separate but related issues concerning the estimation of production function parameters. Fisher (1971) documented a paradox in estimating substitution elasticities -- the puzzling divorce between the technology underlying his simulated data and the technology estimated from these data. This note both resolves the Paradox and, based on this resolution, raises important questions about estimation strategies (pioneered by Caballero, 1994) that rely on cointegration to recover production function parameters.

Keywords: production function elasticities; cointegration (search for similar items in EconPapers)
JEL-codes: C22 E23 (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (1)

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