I have a dataset containing the real exchange rates for all country pairs within the OECD. Now I would like to test stationarity using one of the many panel unit root tests. However, reading Pesaran, Smith, Yamagata & Hvozdyk (2009) I cam across a passage that reads (p. 501):

The use of panel unit root tests in the case of the PPP also necessitates that the real exchange rates included in the panel are all measured agains a common currency, ...

Does that mean it is not ok in my case to use panel unit root tests because I have the pairings of all countries and thus not a common base currency? And if so, why is that? Because the real exchange rates can be expressed as linear combinations of each other?


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