A method often used in econometrics to estimate the value of the physical capital stock of an industrial sector or the whole economy is the so-called Perpetual Inventory Method (PIM). Starting off from a benchmark stock value for capital held, and expressing all values in constant dollars using a price index, known additions to the stock are added, and known disposals as well as depreciation are subtracted year by year (or quarter by quarter). Thus, an historical data series is obtained for the growth of the capital stock over a period of time. In so doing, assumptions are made about the real rate of price inflation, realistic depreciation rates, average service lives of physical capital assets, and so on. The PIM stock values can be compared with various other related economic variables and trends, and adjusted further to obtain the most accurate and credible valuation
Read more about this topic: Capital Formation
Famous quotes containing the words perpetual and/or method:
“The human body is not a thing or substance, given, but a continuous creation. The human body is an energy system ... which is never a complete structure; never static; is in perpetual inner self-construction and self-destruction; we destroy in order to make it new.”
—Norman O. Brown (b. 1913)
“You that do search for every purling spring
Which from the ribs of old Parnassus flows,
And every flower, not sweet perhaps, which grows
Near thereabouts into your poesy wring;
You that do dictionary’s method bring
Into your rhymes, running in rattling rows;”
—Sir Philip Sidney (1554–1586)