How Important Are Idiosyncratic Shocks? Evidence from Labor Supply by Kjetil Storesletten, Chris I. Telmer and Amir Yaron. Published in volume 91, issue 2, pages 413-417 of American Economic Review, May 2001

One of the most puzzling features of currency prices is the forward premium anomaly : the tendency for high interest rate currencies to appreciate. We characterize the anomaly in the context of affine models of the term structure of interest rates. In affine models, the anomaly requires either that state variables have asymmetric effects on state prices in different currencies or that nominal interest rates take on negative values with positive probability. We find the quantitative properties of either alternative to have important shortcomings.