Saturday, January 4, 2014

Kappa and I

I was recently going through some of my previous posts in a bit of 2013 navel gazing and thought I'd add a graph of interest rates (i) and the information transfer index (κ) in order to do a bit of thinking out loud. Here is the graph with constant interest rates as red lines and constant κ as black lines (the actual path of the economy appears as a blue line and the information trap criterion ∂P/∂MB = 0 is a gray curve):


One thing this shows is that constant κ is associated with increasing interest rates (with a slower rate increase for higher values of κ). Increasing κ can decrease the rate of rate increase, keep rates constant, or lower interest rates depending on how fast you increase κ. All else being equal, constant interest rates will be associated with a slowly increasing κ.

No major conclusions to draw at this time that are any different from here or here; just observing.

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Also, try to avoid the use of dollar signs as they interfere with my setup of mathjax. I left it set up that way because I think this is funny for an economics blog. You can use € or £ instead.