In this paper, I explore the implications of incorporating representativeness, in the form of diagnostic expectations, into a small open economy model à la Justiniano and Preston (2010b). The findings suggest diagnostic expectations mitigates the excess exchange rate volatility puzzle, the exchange rate disconnection puzzle, and the forward premium anomaly. In this regard, a small open economy populated with diagnostic agents is broadly more volatile than its rational counterpart. It generates volatility measures for nominal and real exchange rates close to those of developed and developing countries. Moreover, this framework also influences the point estimate of the slope coefficient in reduced-form UIP regressions. The magnitude of the diagnostic amplification mechanism that generates endogenous volatility and magnifies short-term dynamics depends directly on the degree of belief distortion, persistence mechanisms, and policy rules.