Policy makers can make mistakes by confusing temporary demand shocks with permanent shocks, affecting their policy decisions. If a central bank misidentifies a demand shock as a supply shock, it can lead to long-lasting negative effects on the economy. This error can become self-perpetuating, as the central bank's policies based on the mistaken assumption can create a feedback loop that reinforces the initial error. This study shows that such misjudgments can have lasting consequences on the economy due to the interaction between forecasts, policies, and hysteresis.