Here is the issue. I have a CES function that combines durables and energy goods:
Initially alpha_d is equal to 0.97 with sigma_es being equal to 0.75. So there is no issue here.
I want to perform senstivity analysis on that sigma_es (the elasticity of sub between the two goods) and fix its value value close to perfect complementarity, let’s say 0.1. But that value of sigma_es, gives me a value for alpha_d of 0.999999999919. My whole model is built to see the interaction between consumers durables and energy. So taking out energy from the CES function would discredit the model.
I think I’m just going to lower sigma_es to 0.45 for the sensitivity analysis so alpha-d does not get close too 1.