@techreport{NBERw13278,
 title = "Understanding the Forward Premium Puzzle: A Microstructure Approach",
 author = "Craig Burnside and Martin S. Eichenbaum and Sergio Rebelo",
 institution = "National Bureau of Economic Research",
 type = "Working Paper",
 series = "Working Paper Series",
 number = "13278",
 year = "2007",
 month = "July",
 URL = "http://www.nber.org/papers/w13278",
 abstract = {High-interest-rate currencies tend to appreciate relative to low-interest-rate currencies. We argue that adverse-selection problems between participants in foreign exchange markets can account for this 'forward premium puzzle.' The key feature of our model is that the adverse selection problem facing market makers is worse when, based on public information, a currency is expected to appreciate.},
}