Wednesday, July 16, 2014

Dealing with Wicksell and the natural rate

Over 100 years ago, Wicksell defined the natural rate this way:
There is a certain rate of interest on loans which is neutral in respect to commodity prices, and tends neither to raise nor to lower them. (1936 translation from 1898 text, p.102.)

The next generation of mathematicians who make economics a science will have to deal with Wicksell who defined something called the natural interest rate.  The natureal interest rate is like the speed of light in economics.  What did we find out about the sample rate of light? It was a very high sample rate with a narrow Gaussian spectrum, it is a bounded uncertain constant.

The natural rate needs to be modivied similarly, as commodity prices do not instantaneously adapt to rates.

Its not the Wicksell rate, its the Wicksell bandwidth, the time it takes the economy to equilibriate prices. And the Wicksell noise in prices is about a six month noise of about 1 point peak to peak, or .7 RMS. We are talking New York to San Diego, different oceans, different climates, different cultures. Noise is square, so you are Shannon-Nyquist, and the best Wicksell you can do is set rates every year.  Then add in imported oil since 2001, that time constant is five years in American dollars.  So with the complete spectrum of the natural light we have the channel noise and can build the maximum entropy pricing network. Then from there ass entropy inefficiency. 

Isn't the pricing spectrum shaped by the Lagrange bounds?
Likely, so use the appropriate base and have at it. It would be nice to find the wave motion of the pricing mechanism with some statistics over quants in the economic space. Get some pricing geography, go get a Nobel prize. 

Same thing we do with light, as a sample rate.

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