Abstract
In a basic model of monetary dynamics we allow inflationary expectations to be formed as a weighted average of fundamentalist and chartists expectations. The fundamentalists form inflationary expectations rationally in the traditional sense in that they have full knowledge of the economic environment. The chartists form expectations by using standard trend chasing expectations schemes. As inflation acceleratesfdeccelerates an increasing proportion of agents switch from chartism to fundamentalism and fundamentalists put increasing weight on a reversion towards the fundamental value. The study the dynamics of the resulting economic system and show that it can exhibit a range of complex dynamic behaviour.
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Chiarella, C., Khomin, A. (2000). The Dynamic Interaction of Rational Fundamentalists and Trend Chasing Chartists in a Monetary Economy. In: Gatti, D.D., Gallegati, M., Kirman, A. (eds) Interaction and Market Structure. Lecture Notes in Economics and Mathematical Systems, vol 484. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-57005-6_7
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DOI: https://doi.org/10.1007/978-3-642-57005-6_7
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