Balancing the National Accounts: The Adjustment of Initial Estimates — A Neglected Stage in Measurement
Builders of econometric models encounter at the outset a problem of measurement. In spite of the best endeavours of statisticians, national accounts contain statistical discrepancies, residual errors, unidentified items and other balancing entries, evidence of the difficulties arising from the fact that the information available is in some degree incomplete, inconsistent and unreliable. These difficulties are not peculiar to economics: they have long been recognised in the physical sciences, and methods of combining and adjusting measurements have been devised. Thus, about a hundred years ago, Merriman (1884; 8th edn, 1911, p. 1) wrote: ‘The absolutely true values of the observed quantities cannot in general be found, but instead must be accepted and used values, derived from the combination and adjustment of the measurements, which are the most probable, and hence the best’. The same author’s critical bibliography of writings on the method of least squares (Merriman, 1877) enables us to trace the literature on the adjustment of conditioned observations much further back.
KeywordsInitial Estimate Variance Matrix National Account General Government Social Account Matrix
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