That’s indeed a pretty accurate comment, thank you for the clarification !.

]]>Explaining the Lagrange operator concept will indeed require a new post, however, I might look forward to doing that in the next monthly post. Meanwhile here’s the Stata code used.

clear all

set obs 250

gen s=runiform(50,100)

gen x=round(abs(runiform()))

gen y=round(abs(runiform()))

gen z=round(abs(runiform()))

gen Px=10

gen Py=15

gen Pz=20

gen error=runiform()

gen I=Px*x + Py*y + Pz*z + s + error

reg I x y z

reg I x y z s

The Cobb-Douglas utility function that it’s exposed here has a more microeconomic approach. The one you’re mentioning is the aggregate production function of the form Y=K^(α) B^(1-α). It is widely use to model the importance of the elasticity regarding the factors of Capital K and Labor L.

However potential GDP is normally estimated with filters as you mention (Kalman filter might be able to help you to model with the Cobb-Douglas). Actually real applications for the TFP (Total Factor Productivity) are used with a smooth path of the filter for the Solow’s residual.

I suggest you stick parsimonious when you’re estimating anything econometrically. So if you take the Hodrick-Prescott filter to the real GDP (and adjusting the parameter lambda to your periodicity) you’ll have an approximation of the potential GDP in the long-run.

]]>Thank you for this research .

My comment ..

Can You estimated Potential GDP by cobb doclas function..if you can ,what’s the deferential between tha suggest above, and others method, for example;by filtering HP the real GDP..

Thanks. ]]>

Thank you, Sanat. Well from a technical side, no it is easy, WordPress is really an amazing web server that enables you to make all possible editing and changes to your blog or website, free and without any complexities. You do not need to have a programming background, also there are hundreds of free plugins that enable you to add interesting features only with a button click. The hard work comes from creating good and up-to-date content that catches people interest and encourage them to follow your blog. Wish you all the best.

]]>require a massive amount work? I have absolutely no understanding of computer programming however I

had been hoping to start my own blog soon. Anyway, if you have any recommendations or tips for new blog owners please

share. I know this is off subject however I simply had to ask.

Appreciate it! ]]>