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and the European Commission for comments and suggestions. The views expressed here do not necessarily reflect those of the Federal Reserve Bank of St. Louis nor the Federal Reserve System. All errors, omissions, and conclusions remain the sole responsibility of the authors.
The elasticity of substitution between capital and labor features prominently in several areas of economic research. However, a consensus estimate remains elusive. We develop an estimation strategy that filters panel data in an original way and avoids several pitfalls-difficult-to-specify dynamics, transitory time-series variation, and positively sloped… (More)