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Information equilibrium as an economic principle

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  • Jason Smith

Abstract

A general information equilibrium model in the case of ideal information transfer is defined and then used to derive the relationship between supply (information destination) and demand (information source) with the price as the detector of information exchange between demand and supply. We recover the properties of the traditional economic supply-demand diagram. Information equilibrium is then applied to macroeconomic problems, recovering some common macroeconomic models in particular limits like the AD-AS model, IS-LM model (in a low inflation limit), the quantity theory of money (in a high inflation limit) and the Solow-Swan growth model. Information equilibrium results in empirically accurate models of inflation and interest rates, and can be used to motivate a 'statistical economics', analogous to statistical mechanics for thermodynamics.

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  • Jason Smith, 2015. "Information equilibrium as an economic principle," Papers 1510.02435, arXiv.org.
    • Handle: RePEc:arx:papers:1510.02435
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    References listed on IDEAS

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    1. Lee Smolin, 2009. "Time and symmetry in models of economic markets," Papers 0902.4274, arXiv.org.
    2. ., 2015. "The logic and workings of EU Cohesion Policy," Chapters, in: The Regional and Urban Policy of the European Union, chapter 3, pages 46-73, Edward Elgar Publishing.
    3. repec:elg:eechap:15034_3 is not listed on IDEAS
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