In this paper we argue that major shifts in monetary policy regimes can explain a large part of the forward discount puzzle. First, we build a simple theoretical model suggesting that shifts by central banks from destabilizing regimes - when the Taylor principle is violated - to stabilizing regimes - when a central bank follows a Taylor-type rule - can cause violations of uncovered interest rate parity. Following the shift is a transition period when the forward discount puzzle emerges with force, as forecasters gradually update their expectations, eventually restoring parity. Second, we test the model's predictions using four major currencies: the Canadian dollar, German mark, and the British pound, against the US dollar. Results indicate that the evidence for the forward discount puzzle becomes significantly weaker after allowing for a transition period of only 1 to 2 years. These results are robust to different specifications, such as the use of different maturities or base currencies, and also hold for the New Zealand dollar and the Swedish krona, two smaller, but independent currencies.