Essays in economic dynamics with heterogeneous expectations

This thesis explores how people and economic agents (like households, firms, and governments) form expectations about the future and how these expectations influence economic and financial outcomes. It does this in three main chapters, each focusing on a different aspect of expectation formation.
Chapter 2 studies a financial market in which different investors use different forecasting strategies to make decisions. In the presence of boundedly rational agents, with biased forecasts and trend-following rules, we study the effect of two types of speculation: one based on fundamentalist and the other on rational expectations.
Chapter 3 investigates the interplay between information diffusion in social networks and its impact on financial markets. We build a model in which agents receive and exchange information about an asset dividend process. A small proportion of the network has access to either private information or misinformation. Other agents can receive information only from their peers and will adjust their beliefs according to the confidence they have in the source of information.
Chapter 4 focuses on the role of the inattention of households to economic information for the transmission of monetary policy in a Heterogeneous Agent New Keynesian (HANK) model. Using survey data, we provide empirical evidence that households do not form expectations according to the FIRE hypothesis but instead are slow in updating their information, with wealthier households updating twice as much on a monthly basis. We then incorporate this finding into a macroeconomic model and demonstrate that it significantly influences the aggregate responses to monetary shocks.