Uncertainty, Indeterminacy and Shannon's Derivation of Entropy: Implications for Policy Administration - A Systems Theoretical Approach

Author: A.G.Perison

Macroeconomics from University Library of Munich, Germany

Abstract: Most prices and interest rates display fluctuating levels that embody extractable energy and equivalent amounts of money. Such fluctuations are also associated with varying degrees of uncertainty. Shannon's derivations of spectral entropy and information content offer computational techniques for unraveling the portion of useful economies that is resident in such cycles that nevertheless goes unaccounted for as a significant source of missing data in the composition of the overall economy. Shannon's concept of spectral entropy can also be exploited to quantify the amount of uncertainty that would preside over expectations, either adaptive or rational. Apart from Clausius-type and Boltzmannian derivations, Shannon's derivation of entropy which follows Boltzmann's lead, can be applied to price and rate fluctuations, thus unraveling a higher order generator mechanism for cost pressure and inflation. In this working paper the basis and fundamentals of Shannon- Weaver formulas are discussed, in their raw forms, prior to application samples that will follow in a separate article.

Keywords: Adaptive expectations; rational expectations; inflation targeting; decision analytical process; intelligent agents; seigniorage; active policy; inactive policy; exogenous uncertainty; nominal interest rate pegging; spectral analysis; relative power; spectral band; within- band entropy; between-band entropy; information percentage (search for similar items in EconPapers)
JEL-codes: C C30 C63 C68 C88 D5 E17 E31 E40 E47 E50 E58 (search for similar items in EconPapers)
Pages: 8 pages
Date: 2001-12-05, Revised 2001-12-10
Note: Minor corrections and formating was applied on Dec 7. Type of Document - html; pages: 8; figures: graphics attachments, gif files
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