CALIBRATION OF CES FUNCTIONS FOR REAL-WORLD MULTISECTORAL MODELING

Abstract

We show how to calibrate CES production and utility functions when indirect taxation affecting inputs and consumption is present. These calibrated functions can then be used in computable general equilibrium models. Taxation modifies the standard calibration procedures since any taxed good has two associated prices and a choice of reference value units has to be made. We also provide an example of computer code to solve the calibration of CES utilities under two alternate normalizations.

Keywords:

• Calibration
• CGE modeling
• CES utility and cost functions

Acknowledgements

Institutional support from research grants SEC200-712 and SGR2005-0712 is gratefully acknowledged. The author is also thankful to suggestions from editor Bart Los.