Saturday, December 4, 2010

There are two really important macroeconomic assumptions

Macro economic  theory can always count on  two things, there is no infinite energy source and you cannot cut a person in half and get half an economic agent.  These  two constraints, restated, 1)  The system must be square integrable over all the agents, and 2) The agent quant forces the theory into production system, quantization.

The second part comes from finite dimensionality, agents can be allocated in one, two, three; never a fraction.  Thus,  any production spectrum (yield curve) will have lines, it will be a sampled data system.  Here is the proof.  Because we are square integrable, there exist a transform from agent space to frequency, a yield curve generator.  If agent space is quantized, then frequency space must have distinct lines,  and that is going to be a production system, a system which decomposes real value into a yield curve.

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