In this study, we apply nonlinear panel unit-root test to assess the nonstationary properties of the real exchange rate for seven major Organization of the Petroleum Exporting Countries (OPEC). We find that nonlinear panel unit-root test has higher power than linear method suggested by Breuer et al. (2001 Breuer, J. B., McNown, R. and Wallace, M. S. 2001. Misleading inferences from panel unit-root tests with an illustration from purchasing power parity. Review of International Economics, 9: 482–93.
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) if the true data generating process of exchange rate is in fact a stationary nonlinear process. We re-examine the validity of Purchasing Power Parity (PPP) from the panel nonlinear point of view and provide robust evidence clearly indicating that PPP holds true for four countries, namely Angola, Indonesia, Iran and Saudi Arabia. Our findings point out their exchange rate adjustment is mean reversion towards PPP equilibrium values in a nonlinear way.