The relationship between the percentage change in the spot exchange rate over time and the differential between comparable interest rates in different national capital markets is known as the international Fisher Effect.
The Fisher effect is an important relationship in macroeconomics. It shows the causal relationship between nominal interest rates and inflation. Higher nominal interest rates lead to lower inflation.
IFE Limits IFE theory is based on the Fisher effect and PPP Fisher effect limits: the difference between nominal interest rates and real inflation rates does not match.
In the short term, the IFE is generally unreliable due to the many short-term factors that affect forecasts of exchange rates, nominal interest rates, and inflation. The long-term international Fisher effect has been shown to be slightly better, but not by much.
Learn more about international Fisher Effect here: https://brainly.com/question/14001911
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