The dynamic interaction of rational fundamentalists and trend chasing chartists in a monetary economy

In a basic model of monetary dynamics we allow inflationary expectations to be formed as a weighted average of fundamentalist and chartists expectatio ns. The fundamentalists form inflationary expectations rationally in the tr aditional sense in that they have full knowledge of the economic environmen t. The chartists form expectations by using standard trend chasing expectat ions schemes. As inflation accelerates/deccelerates an increasing proportio n of agents switch from chartism to fundamentalism and fundamentalists put increasing weight on a reversion towards the fundamental value. The study t he dynamics of the resulting economic system and show that it can exhibit a range of complex dynamic behaviour.