A Monte Carlo Study on the Fit of a Cost Function by a Fourier Flexible Functional Form*

We use the simulation model ofCbalfallt and Gallant (IUS5) to investigate the fit of a Fourier flexible form to a cost function when interest is t.o estimate elasticities of substitution. The data is subject to errors in variables and the estimation method is seemingly unrelated regressions. \IVe use two approximating Fourier functional forms * Hesearch supported by C:-IPq ** Banco do Brasil, C .. dec Prcsidencia, BrasIlia DF *** Enbrapa and Thpartmrento de Estatlstica! UnB, BrasfliaD F R. d e Economctria Rio d e Janeiro v. 15,119 2, pp.:n�54 Novembro/?vlar<;o 1996 A Monte Carlo study on the fit of a'cost function with 13 (1'1'1'13) and 22 (1'1'1'22) parameters. The biases in point estimation are negligible for 1'1'1'13. The classical t statistics do not follow, in general, the Student's distribution. Even when estimates are properly centered and scaled there are cases where the normal approximation does not hold. Palavras-Chave: Flexible forms, fador demand systems, translog cost function, Fourier flexible form, estimation of elasticities C6digo J EL: C15, D21