Method for obtaining yearly parameter estimates with application to the U.S. economy

Abstract

The proposed estimation method is based on an aggregative production function homogeneous of degree one. In the present application, we related national output to labor and capital inputs. Through two transformations of the function, we derived two relations each involving two parameters of the other relation. Next, stacking these relations in a single regression equation, we obtained two observations per year, which allowed us to obtain annual estimates of a parameter value. Fitting this equation to U.S. data compiled by Christensen and Jorgenson and exhibiting constant returns to scale, we obtained yearly estimates of parameter values.