Thursday, January 11, 2018

Rate of growth in inventory

What do people believe about interest rates?


The firm wants a tendency for inventory surplus to grow enough such that transaction uncertainty does not drive inventory levels negative.  Interest charges keep flow positive definite, asymmetrical flow.

Firms and households operate with uncertain goods as they buy and sell.  So they must keep liquid to cover the whole error bound.  In Magic Walrus terms, the interest rate is the variance of flow.

The charges are set so that agents keep spare capacity and the spare capacity allows queue adjustments so supply mostly equals demand. Another way to put it, the interest charge is the ratio of congestion fees/asset value that I need to get through a Coinbase transaction. In basket brigade theory, the interest charges induce us to keep spare capacity in our basket so we may skip the long queues and jump in the short ones..


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