Entropy as a Macroscopic Order Parameter in Financial Crisis Dynamics
Authors/Creators
Description
We propose Shannon entropy, constructed from the distribution of quarterly credit growth rates, as a macroscopic order parameter for financial
crisis dynamics. Using BIS total credit data for twelve advanced economies (1952Q1–2023Q4) and crisis dates from Laeven & Valencia (2020), we
document systematic entropy buildup prior to crises, variance amplification, persistence shifts, and post-crisis relaxation. These patterns exhibit
cross-country universality consistent with critical transitions in nonequilibrium systems.
Abstract
Revised April 2026: Substantially expanded. Added formal data methodology (BIS data, 12 countries, Laeven & Valencia crisis dates), literature
review with 20 references (Minsky, Reinhart & Rogoff, Schularick & Taylor, Battiston et al.), cross-country summary table, robustness analysis,
limitations, and macroprudential policy implications
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Additional details
Software
- Repository URL
- https://github.com/shubhL-research/computational-economics-research/tree/main
- Programming language
- Python