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The Relationship between the US Economy’s Information Processing and Absorption Ratios
1  New York Life Insurance Company, 51 Madison Avenue, New York, NY 10010


After the 2008 financial collapse, (Kritzman et al 2011) introduced the now popular measure of implied systemic risk called the absorption ratio.  This statistic is constructed from a fixed number of eigenvectors, and measures how closely the economy’s markets are coupled. The more closely financial markets are coupled the more susceptible they are to systemic collapse.  (Parker 2017) utilized information theory to develop the concept of the entropic yield curve.  From this equation, the implied information processing ratio or entropic efficiency of the economy can be derived.  This entropic measure can also be useful in predicting economic downturns. In the current work, the relationship between these two ratios is explored.

Keywords: Shannon entropy; Kullback-Leibler divergence; yield curve; volatility, Absorption Ratio, Entropic Yield Curve