@techreport{NBERw9391,
 title = "Exchange Rate Dynamics, Learning and Misperception",
 author = "Pierre-Olivier Gourinchas and Aaron Tornell",
 institution = "National Bureau of Economic Research",
 type = "Working Paper",
 series = "Working Paper Series",
 number = "9391",
 year = "2002",
 month = "December",
 URL = "http://www.nber.org/papers/w9391",
 abstract = {We propose a new explanation for the forward-premium and the delayed-overshooting puzzles. Both puzzles arise from a systematic under-reaction of short-term interest rate forecasts to current innovations. Accordingly, the forward premium is always a biased predictor of future depreciation; the bias can be so severe as to lead to negative coeffcients in the 'Fama' regression; delayed overshooting may or may not occur depending upon the persistence of interest rate innovations and the degree of under-reaction; lastly, for G-7 countries against the U.S., these puzzles can be rationalized for values of the model's parameters that match empirical estimates},
}