TY  - JOUR
AU  - Gourinchas,Pierre-Olivier
AU  - Tornell,Aaron
TI  - Exchange Rate Dynamics, Learning and Misperception
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9391
PY  - 2002
Y2  - December 2002
UR  - http://www.nber.org/papers/w9391
L1  - http://www.nber.org/papers/w9391.pdf
N1  - Author contact info:
Pierre-Olivier Gourinchas
Department of Economics
University of California, Berkeley
530 Evans Hall #3880
Berkeley, CA 94720-3880
Tel: 510/643-0720
Fax: 510/642-6615
E-Mail: pog@econ.berkeley.edu

Aaron Tornell
Department of Economics
UCLA
405 Hilgard Ave, Bunche Hall #8283
Los Angeles, CA  90095-1477
Tel: 310/794-1686
Fax: 310/825-9528
E-Mail: tornell@econ.ucla.edu
AB  - 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
ER  -