Theories of “rational inattention” (Sims, 2003), according to which people vary the frequency with which they re-examine economic decisions according to the underlying economic environment, imply that the dynamic behavior of the economy would change - probably in the direction of greater stability and persistence - in a more stable pricing environment, in which people reconsider their economic decisions less frequently.
Second, low interest rates relative to a natural rate of interest – especially in a context of a buoyant economy and low inflation – suggested that monetary policy had been too easy in the years before the crisis. Fiscal policy was probably also too easy. 3. Third, global imbalances and too low interest rates supported very strong credit growth and excessive risk taking. 4.