I'm performing a multiple regression to see whether the free trade agreement (FTA) between South Korea and the EU had an effect upon the bilateral trade. I am regressing my dependent variable (bilateral trade) upon 4 independent variables:
- x1= GDP (nominal data)
- x2= CPI
- x3= NEER (the nominal effective exchange rate), which is an index number
- x4= dummy variable for the FTA.
I am using quarterly panel data computed for 10 years for all 22 countries included in the FTA. I am a bit confused how to use the fourth variable, the index number in this multiple regression. The base year of the data set I found (from the IMF) is 2010. How do I put this index (NEER) in my regression? Do I use the changes of the index in my regression, with log? And how can I interpret this variable? An increase of 1 (1%) in the index is a increase of … in the dependent variable?