The McGraw-Hill Series Economics essentials of economics brue, McConnell, and Flynn Essentials of Economics

TABLE 1.2
Investment Data for Four Companies, 1935–1954
Observation
I
F
−
1
C
−
1
Observation
I
F
−
1
C
−
1
GE
US
1935
33.1
1170.6
97.8
1936
45.0
2015.8
104.4
1937
77.2
2803.3
118.0
1938
44.6
2039.7
156.2
1939
48.1
2256.2
172.6
1940
74.4
2132.2
186.6
1941
113.0
1834.1
220.9
1942
91.9
1588.0
287.8
1943
61.3
1749.4
319.9
1944
56.8
1687.2
321.3
1945
93.6
2007.7
319.6
1946
159.9
2208.3
346.0
1947
147.2
1656.7
456.4
1948
146.3
1604.4
543.4
1949
98.3
1431.8
618.3
1950
93.5
1610.5
647.4
1951
135.2
1819.4
671.3
1952
157.3
2079.7
726.1
1953
179.5
2371.6
800.3
1954
189.6
2759.9
888.9
GM
1935
317.6
3078.5
2.8
1936
391.8
4661.7
52.6
1937
410.6
5387.1
156.9
1938
257.7
2792.2
209.2
1939
330.8
4313.2
203.4
1940
461.2
4643.9
207.2
1941
512.0
4551.2
255.2
1942
448.0
3244.1
303.7
1943
499.6
4053.7
264.1
1944
547.5
4379.3
201.6
1945
561.2
4840.9
265.0
1946
688.1
4900.0
402.2
1947
568.9
3526.5
761.5
1948
529.2
3245.7
922.4
1949
555.1
3700.2
1020.1
1950
642.9
3755.6
1099.0
1951
755.9
4833.0
1207.7
1952
891.2
4924.9
1430.5
1953
1304.4
6241.7
1777.3
1954
1486.7
5593.6
2226.3
Notes: Y
=
I
=
gross investment 
=
additions to plant and equipment plus maintenance and repairs, in millions of dollars deflated by 
P
1
.
X
2
=
F
=
value of the firm 
=
price of common and preferred shares at Dec. 31 (or average price of Dec. 31 and Jan. 31 of the following year) times
number of common and preferred shares outstanding plus total book value of debt at Dec. 31, in millions of dollars deflated by 
P
2
.
X
3
=
C
=
stock of plant and equipment 
=
accumulated sum of net additions to plant and equipment deflated by 
P
1
minus depreciation allowance
deflated by 
P
3
in these definitions.
P
1
=
implicit price deflator of producers’ durable equipment (1947 
=
100).
P
2
=
implicit price deflator of GNP (1947 
=
100).
P
3
=
depreciation expense deflator 
=
10-year moving average of wholesale price index of metals and metal products (1947 
=
100).
Source: Reproduced from H. D. Vinod and Aman Ullah, 
Recent Advances in Regression Methods,
Marcel Dekker, New York, 1981, pp. 259–261.
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Chapter 1
The Nature of Regression Analysis
27
The Accuracy of Data
15
Although plenty of data are available for economic research, the quality of the data is often
not that good. There are several reasons for that.
1. As noted, most social science data are nonexperimental in nature. Therefore, there is the
possibility of observational errors, either of omission or commission.
2. Even in experimentally collected data, errors of measurement arise from approxima-
tions and roundoffs.
3. In questionnaire-type surveys, the problem of nonresponse can be serious; a researcher
is lucky to get a 40 percent response rate to a questionnaire. Analysis based on such a
partial response rate may not truly reflect the behavior of the 60 percent who did not re-
spond, thereby leading to what is known as (sample) selectivity bias. Then there is the
further problem that those who do respond to the questionnaire may not answer all the
questions, especially questions of a financially sensitive nature, thus leading to additional
selectivity bias.
4. The sampling methods used in obtaining the data may vary so widely that it is often dif-
ficult to compare the results obtained from the various samples.
5. Economic data are generally available at a highly aggregate level. For example, most
macrodata (e.g., GNP, employment, inflation, unemployment) are available for the econ-
omy as a whole or at the most for some broad geographical regions. Such highly aggre-
gated data may not tell us much about the individuals or microunits that may be the
ultimate object of study.
6. Because of confidentiality, certain data can be published only in highly aggregate form.
The IRS, for example, is not allowed by law to disclose data on individual tax returns;
it can only release some broad summary data. Therefore, if one wants to find out how
much individuals with a certain level of income spent on health care, one cannot do so
except at a very highly aggregate level. Such macroanalysis often fails to reveal the dy-
namics of the behavior of the microunits. Similarly, the Department of Commerce,
which conducts the census of business every 5 years, is not allowed to disclose infor-
mation on production, employment, energy consumption, research and development
expenditure, etc., at the firm level. It is therefore difficult to study the interfirm differences
on these items.
Because of all of these and many other problems,