When testing the International Fisher Effect in Excel I am unsure of which excha

Question

When testing the International Fisher Effect in Excel I am unsure of which exchange rate to use as my Y variable. If my to countries are China and Japan if Japan is the home country and for example (a) 1 yen=500 renminbi and (b)1 renminbi=50 yen. Which of these two exchange rates would be my Y variable Japan is my home country a or b? Thanks
When testing the International Fisher Effect in Excel I am unsure of which exchange rate to use as my Y variable. If my to countries are China and Japan if Japan is the home country and for example (a) 1 yen=500 renminbi and (b)1 renminbi=50 yen. Which of these two exchange rates would be my Y variable Japan is my home country a or b? Thanks

Explanation / Answer

International Fisher effect is a model that links the interest rate and exchange rate and suggests that interest rate differential gives impact on the expected spot exchange rate between countries. With the help of regression analysis, the model of IFE can be applied on all countries considering the home country as the Y variable and foreign countries as X variables. In this case China can be used as the home country using as Y variable and Japan as an X variable. Interchangeably, we can use Japan as the Y variable and China as X variable.

For example Maurice K. Shalishali has applied regression analysis using IFE on eight selected Asian Countries. Each country chosen was interchangeably used as the home country as the Y variable and other foreign countries were x variables to tract the trail of the effect. A Test of the International Fisher Effect in Selected Asian Countries

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