100
MACROECONOMICS
observed,
Q
M
cannot be directly observed
11
and is much more difficult to mea-
sure. The market value of a firm is the stock market value of its shares (price of
a share times the number of shares) plus its net debt or total value of bonds
outstanding. Dividing this total market value by the value of the capital stock
of the firm at replacement cost—the price firms have to pay to replace their
current productive capacity of plant, machines—gives us a measure of Tobin’s
Q.
12
We also need an estimate of the adjustment cost parameter
b
in Eq. (4.7)
to estimate the investment function. Summers, Bosworth, Tobin, ...
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