| Abstract [eng] |
In this thesis, a Time Varying Elasticity of Substitution (TVES) production function is constructed based on the hypothesis that elasticity of substitution is dependent on the distribution of public and private sectors in an economic system. The TVES function is written as a dynamic linear model and its estimation algorithm is specified using normalization, Kalman filtering and smoothing. Empirical estimation of elasticity of substitution and production growth is done using EU KLEMS data for 9 countries in a 28-year period. The CES model is rejected in favor of the TVES model for 8 countries, meaning that the elasticity of substitution is dependent on the aforementioned distribution, however, it does not explain all variation. |
