The Multiscale Entropic Life Cycle of the Yield Curve: Heartbeat of the Economy

21 Pages Posted: 30 Aug 2023 Last revised: 23 Jan 2024

See all articles by Edgar Parker

Edgar Parker

New York Life Insurance Company

Date Written: August 29, 2023

Abstract

A new interpretation of the evolution of the yield curve based on multiscale entropy is presented in this paper. Building upon prior research the full variety and sequence of yield curve shapes over the business cycle are described as part of a multiscale entropic lifecycle (MSELC). Unlike traditional methods this new perspective explains the spectrum of yield curve structures as part of a wider and more general natural process. These various shapes are seen to be indicative of a life cycle which begins with a relatively higher capacity of the economy to process and to adapt to complex information. This ability to process complex information gradually gives way to a decline in adaptability and increasing levels of information loss. At the end of the business cycle the economy’s information loss reaches a maximum and forces a reorganization around new technologies and more efficient information processing structures initiating the next cycle. This new perspective expands our understanding of the meaning of the yield curve and its evolution. Finally, the MSELC is shown to be an example of a general phenomenon that occurs in other complex information processing systems such as the human circulatory system.

Keywords: Business Cycle, Multiscale Entropic Life Cycle, Multiscale Entropy, Yield Curve, Inverted Yield Curve, Entropic Yield Curve, Shannon Limit, Landauer's Principle

JEL Classification: E32, E37, E43, E47, O33, C22, C53, E17, G12

Suggested Citation

Parker, Edgar, The Multiscale Entropic Life Cycle of the Yield Curve: Heartbeat of the Economy (August 29, 2023). Available at SSRN: https://ssrn.com/abstract=3853703

Edgar Parker (Contact Author)

New York Life Insurance Company ( email )

51 Madison Avenue
New York, NY 10010
United States

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