Dear all
I am estimating an OLS regression, dependent variable is inflation, explanatory variables include usual controls and exchage rate, data is monthly, 1999 to 2009, all variables are stationary, coefficients are signigicant, regression passes usual Bruesch-Godfrey LM test, ARCH Test, Ramsey RESET, but fails to pass Jarque-Bera test (so the residuals are no-normal). My question is:
(i) Should one rely on the results in the absence of residual non-normaltiy?
secondly, I guess the residual non-normality is due to a unusually high inflation values against 2003 (12 values in our case as we have monthly data, these look like outliers), in this context my question is:
(ii) what could be the solution to get normal residuals? Can we use dummy variable to get regression residuals normality?
Thanking you in advance.
Learner
OLS Residual non-normality
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