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:
“You desire to embrace it, to caress it, to possess it; and finally a soft sense of possession grows up and your visit becomes a perpetual love affair.”
—Henry James (1843–1916)
““I have usually found that there was method in his madness.”
“Some folk might say there was madness in his method.””
—Sir Arthur Conan Doyle (1859–1930)