I study the effect of heterogeneous beliefs about asset prices on the long-term behavior of financial markets. Starting from the ideas of Abreu and Brunnermeier (2003), a two-dimensional system of differential equations is developed. The first dynamic variable is the asset price growth rate. The...

This study follows Rotemberg and Woodford (1998) and estimates a three-equation model of output, interest rate and inflation, in order to evaluate alternative rules by which the UK monetary authority may decide on setting the main interest rate. As in the original paper, the model setup is a...