Three puzzles are closely related to the forward-bias puzzle and the failure of uncovered interest parity: (1) UIP failure is greater for short than long maturities, (2) forward bias is larger between developed than between developing countries and (3) there is no systematic forward bias in...

Several articles find no support for the law of one price (LOP) in commodity markets. Only a few articles find some support. A rejection of the LOP would strike at the heart of economic theory. A rejection would suggest that firms do not maximize wealth and households do not maximize utility....

Using VAR, a large literature claims to find evidence of some form of Dornbuschovershooting. But the evidence is fragile in the sense of Leamer. The literature uses the wrong test for overshooting, unusually narrow confidence intervals and questionable shocks. In addition, it is difficult to...

Several articles claim that Eichenbaum and Evans (1995) shows that nominal exchange rates experience a delayed version of Dornbusch overshooting. These same articles usually claim that impulse responses similar to those in Eichenbaum and Evans are evidence of such overshooting. But Eichenbaum...

When covered interest parity holds, as appears to be the case, the forward exchange rate is not the expected future spot rate. As a result: (1) in general covered and uncovered interest parity are mutually inconsistent; (2) the standard equation that produces the forward-bias puzzle is...

The literature assumes that the theory of uncovered interest parity fails because investing without cover is risky and investors are risk adverse. But covered interest parity implies that the theory can fail even when investors are risk neutral and hold when investors are risk adverse and there...

A complete solution to the forward-bias puzzle should provide an econometric solution and an economic explanation for that solution. A complete solution should also explain the closely related failure of uncovered interest parity. In addition it should explain some related anomalies. One such...