Economics
Capital-labor substitution elasticity: A simulated method of moments approach
Document Type
Article
Abstract
The elasticity of substitution between capital and labor plays an important role in the analysis of economic and policy issues such as factors' share in national income and tax policies on business capital formation. Rather than focusing on long-run relationships to estimate this elasticity, I exploit the short-run variations in the labor income share due to changes in capital-embodied technology. Using the simulated method of moments approach, I obtain an elasticity estimate that is clearly less than one. The study indicates that estimates based on the long-run relationship of factor's share may tend to be significantly larger.
Publication Title
Economic Modelling
Publication Date
4-2021
Volume
97
First Page
14
Last Page
44
ISSN
0264-9993
DOI
10.1016/j.econmod.2020.12.022
Keywords
business cycles, indirect inference, investment-specific technological change, labor income share, substitution elasticity
Repository Citation
Wemy, Edouard, "Capital-labor substitution elasticity: A simulated method of moments approach" (2021). Economics. 216.
https://commons.clarku.edu/faculty_economics/216
