This paper compares the "level" regression of the future spot rate on the current forward rate, which yields a slope coefficient close to unity, to the forward premium puzzle, i.e., a regression of the change in the spot exchange rate on the forward premium, which paradoxically yields a slope...

Chakraborty (2007) provides a model of adaptive learning applied to a simple monetary model of exchange rate under flexible prices to generate results similar to forward premium puzzle. This paper redifines the model and empirically examines key model assumptions of structural break in the...