Monetary policy failures linked to complex dynamics in New Keynesian model
The article explores how different types of agents in an economic model affect its stability. They find that having a mix of fully rational and internally rational agents doesn't necessarily make the system unstable. The study shows that the stability condition is the same whether all agents are fully rational or not. When the cost of being fully rational is very high, the model remains stable. However, increasing this cost can lead to instability and randomness in the system. These findings suggest that complex dynamics in the model are linked to failures in monetary policy.