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If the p value of JB statistic is sufficiently low then one can reject the hypothesis that residuals are normally distributed.

Following are the results for Jarque Bera test

The p value of Jb statistic is not statistically significant. Hence, we accept the hypothesis that the residuals are normally distributed. Also the values of skewness & kurtosis are close to 0 & 3 respectively.

9 Conclusion总结

In this paper, I have examined the determinants for the long term change in nominal exchange rates. The long run change in the nominal exchange rates has been decomposed into the long run inflation differential & the long run change in real exchange rates.

Variables used to explain the growth of nominal exchange rates are the variables affecting the long run inflation rate and the long run change in real exchange rate. Variables affecting long run inflation rate are the size of the country, openness, political stability, outstanding government debt , central bank independence. I have made use of country size, openness & political stability in my model. Other variables are GDP per capita & terms of trade , which affects the long run real exchange rate.

The coefficient of GDP (proxy for country size) is negative whereas it is expected to be positive according to the literature review. This can be due to the wage/price rigidity. According to the economic theory, the larger the country size the higher is the incentive for the government to inflate. The increase in output or employment does not lead to increase in inflation due to the price or wage rigidity. This can possibly be the reason behind a negative coefficient of GDP.