While empirical evidence nds only a weak relationship between nominal exchangerates and macroeconomic fundamentals, forex markets participants often attribute ex-change rate movements to a macroeconomic variable. The variables that matter, how-ever, appear to change over time and some variable is typically taken as a scapegoat.For example, the current dollar weakness appears to be caused almost exclusively bythe large current account de cit, while its previous strength was explained mainly bygrowth di erentials. In this paper, we propose an explanation of this phenomenon in asimple monetary model of the exchange rate with noisy rational expectations, where in-vestors have heterogeneous information on some structural parameter of the economy.In this context, there may be rational confusion about the true source of exchange rate uctuations, so that if an unobservable variable a ects the exchange rate, investorsmay attribute this movement to some current macroeconomic fundamental. We showthat this e ect applies only to variables with large imbalances. The model thus impliesthat the impact of macroeconomic variables on the exchange rate changes over time.
