Misperceptions, heterogeneous expectations and macroeconomic dynamics

We explore the behaviour of our model when agents have access to two simple predictors, one of which is consistent with a mistaken belief that macroeconomic variables are more persistent. We show that the presence of a `persistent predictor' can lead to changes in beliefs which are self reinforcing, giving rise to endogenous fluctutions in the time series properties of the economy. Moreover, we show that such fluctuations arise even if we replace the `persistent predictor' with learning under constant gain.