Effective Rank and Dimensionality Reduction: from Complex Disaggregation Back to a Simple World

CSWP 57 (July 2022)

Author Lefteris Tsoulfidis

Keywords Labor theory of value; Randomness hypothesis; Vertical integration; Effective rank; Eigendecomposition

JEL B24; B51; C67; D46; D57; E11; E32

In recent years there is a revival of political economy, and discussions are about the near linearities of price rate of profit trajectories. In this article, we argue that economy’s input-output data are of low effective dimensionality, meaning that there is overfitting in that it takes only a few eigenvalues and respected eigenvectors for an adequate representation of the movement of prices, and that some of the fundamental features of the economy may be tracked down with the use of a low dimensional system.

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