Purchasing Power Parity in the BRICS and the MIST Countries: Sequential Panel Selection Method

Abstract

The Sequential Panel Selection Method (SPSM) procedure is applied to the real effective exchange rates of BRICS (Brazil, Russia, India, China, and South Africa) and MIST (Mexico, Indonesia, South Korea and Turkey) countries, using monthly data over the period 1994-2012. While several panel unit root tests give us mixed results, SPSM classifies the whole panel into a group of stationary series and a group of non-stationary series, identifying stationary series within the panel. Empirical results from the SPSM procedure that uses the Panel KSS unit root test with a Fourier function indicate that mean-reversion in real effective exchange rates holds true for these two groups of countries under study.

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