Pippenger, John E - Department of Economics, University of California-Santa … - 2010
The forward-bias puzzle is probably the most important puzzle in international finance. But there is a simple solution …. Covered interest parity implies that the forward-bias puzzle is the result of two omitted variables: (1) the future change in … the forward exchange rate and (2) the future interest rate differential. As Table 3 shows, at least for my data, the …