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Uncertainty, Indeterminacy and Shannon's Derivation of Entropy: Implications for Policy Administration - A Systems Theoretical Approach


  • Author: A.G.Perison


Most prices and interest rates display fluctuating levels that embody extractable energy and equivalent amounts of money. Such fluctuations are also associated with varying degrees of uncertainty. Shannon's derivations of spectral entropy and information content offer computational techniques for unraveling the portion of useful economies that is resident in such cycles that nevertheless goes unaccounted for as a significant source of missing data in the composition of the overall economy. Shannon's concept of spectral entropy can also be exploited to quantify the amount of uncertainty that would preside over expectations, either adaptive or rational. Apart from Clausius-type and Boltzmannian derivations, Shannon's derivation of entropy which follows Boltzmann's lead, can be applied to price and rate fluctuations, thus unraveling a higher order generator mechanism for cost pressure and inflation. In this working paper the basis and fundamentals of Shannon- Weaver formulas are discussed, in their raw forms, prior to application samples that will follow in a separate article.

Suggested Citation

  • Author: A.G.Perison, 2001. "Uncertainty, Indeterminacy and Shannon's Derivation of Entropy: Implications for Policy Administration - A Systems Theoretical Approach," Macroeconomics 0112001, EconWPA, revised 10 Dec 2001.
  • Handle: RePEc:wpa:wuwpma:0112001 Note: Minor corrections and formating was applied on Dec 7. Type of Document - html; pages: 8; figures: graphics attachments, gif files

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    More about this item


    Adaptive expectations; rational expectations; inflation targeting; decision analytical process; intelligent agents; seigniorage; active policy; inactive policy; exogenous uncertainty; nominal interest rate pegging; spectral analysis; relative power; spectral band; within- band entropy; between-band entropy; information percentage;

    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • C - Mathematical and Quantitative Methods
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • C88 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Other Computer Software
    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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