Something for the math nerds. I've said it a couple times, but haven't actually shown the proof. However, it is true that information equilibrium is an equivalence relation. If we define the statement A to be in information equilibrium with B (which we'll denote A≅B) by the relationship (i.e. ideal information transfer from A to B):
(1) dAdB=kAB
for some value of k, then, first we can show that A≅A because
dAdA=kAA
1=k⋅1
and we can take k=1. Second we can show that A≅B implies B≅A by re-deriving the relationship (1), except moving the variables to the opposite side:
dBdA=1kBA=k′BA
(2a) dAdB=aAB
(2b) dBdC=bBC
such that
dAdC=dAdBdBdC=abABBC
dAdC=kAC
with information transfer index k=ab. That gives us the three properties of an equivalence relation: reflexivity, symmetry and transitivity.
Jason, how does it work in the (very) long run?
ReplyDeletehttp://www.bankofengland.co.uk/research/Pages/onebank/datasets.aspx#5
It works fairly well on that dataset:
Deletehttp://informationtransfereconomics.blogspot.com/2013/11/the-long-run-in-uk.html
In looking at that dataset, there were some interesting insights on how the labor market works:
http://informationtransfereconomics.blogspot.com/2013/11/the-labour-supply-part-1.html
http://informationtransfereconomics.blogspot.com/2013/11/the-labour-supply-part-2.html
However, I hadn't quite worked out how the monetary base reserves worked in the model at the time, so I should probably re-do the results.
It also works reasonably well on a long run US dataset:
http://informationtransfereconomics.blogspot.com/2014/09/the-us-economy-1798-to-present.html
The separation into monetary regimes still seems somewhat ad hoc to me, but remains important.
And here is the promised update:
Deletehttp://informationtransfereconomics.blogspot.com/2015/03/the-long-run-in-uk-redux.html