Inflation Convergence and the Prospect of a Common Currency in BRICS Countries: An Empirical Approach

Abstract

According to the theory of optimum currency areas, one of the fundamental prerequisites for the adoption of a common currency within an economic union is the convergence of inflation rates among the member states. The primary objective of this study is to examine the presence of inflation convergence among BRICS countries in the context of a potential common currency initiative. For this purpose, the stationarity of twelve-month inflation series, determined at a monthly frequency for the countries of Brazil, Russia, India, China, South Africa, Iran, Egypt, Ethiopia, and Saudi Arabia, was analyzed over the period 2012:M1 to 2024:M10 using panel unit root tests. In the empirical analysis, the PANICCA test, which accounts for cross-sectional dependence, and the Fourier Panel KPSS test, which captures both abrupt and smooth structural breaks, were employed. The empirical findings indicate the existence of inflation convergence among the countries studied. In this regard, it may be asserted that one of the necessary conditions for the formation of a common currency among these countries is met. Nevertheless, significant differences in the economic structures, trade patterns, and political systems of the member states, as well as potential concerns regarding national sovereignty, suggest that the likelihood of BRICS establishing a common currency remains limited.

Keywords

• Inflation Convergence
• Common Currency
• BRICS
• Panel Unit Root Test.

BRICS Ülkelerinde Enflasyon Yakınsaması ve Ortak Para Olasılığı: Ampirik Bir Yaklaşım

Öz

Optimum para alanı teorisine göre, bir ekonomik birlikte ortak para birimi kullanmanın gerekli ön koşullarından biri söz konusu ülkeler arasında enflasyon yakınsamasıdır. Bu çalışmanın amacı, ortak para yaratma olasılığı doğrultusunda BRICS ülkeleri arasında enflasyon yakınsamasının varlığını araştırmaktır. Bu amaçla, söz konusu ülke grubunda yer alan Brezilya, Rusya, Hindistan, Çin, Güney Afrika, İran, Mısır, Etiyopya ve Suudi Arabistan’a ait aylık frekansta belirlenen on iki aylık enflasyon serilerinin durağanlığı 2012:M1-2024:M10 dönemi için panel birim kök testleri ile araştırılmıştır. Araştırmada, ülkeler arasındaki yatay kesit bağımlılığını dikkate alan PANICCA testi ile ani ve yumuşak kırılmaları dikkate alan Fourier Panel KPSS panel birim kök testi kullanılmıştır. Bulgulara göre, söz konusu ülkeler arasında enflasyon yakınsaması vardır. Bu bağlamda, söz konusu ülkelerin ortak para yaratmasının ön koşullarından birinin gerçekleştiği ifade etmek mümkündür. Ancak, ülkelerinin ekonomik ve ticari yapıları ve politik sistemleri farklılıklar ve ortak paranın egemenlik kaygılarına yol açması gibi nedenlerden dolayı BRICS’in ortak para yaratma olasılığının düşük olduğu ifade edilebilir.

Anahtar Kelimeler

• Enflasyon Yakınsaması
• Ortak Para
• BRICS
• Panel Birim Kök Testi.

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