IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

The Alternative to the Existing System of the Concepts about Purchasing Power Parity Deviations . Derived from the Estonian Experience

  • Jaanus Raim


    (Department of Economics at Tallinn University of Technology)

Registered author(s):

    The huge price differences between the former Soviet Union (FSU) and remaining world emerged at the beginning of 1990s. This phenomenon of hundredfold relative purchasing power of foreign currencies in the republics of FSU is not systematically explained by the traditional system of the Purchasing Power Parity (PPP) deviations¥ causes ñ by monetary, real demand side and real supply side shocks. In this context, the paper examines the traditional causes of price differences and derives the improved system of the PPP deviations¥ causes. We show that both the basic causes of PPP deviations are determined by potential investors¥ imagination about the usefulness of the countries¥ assets.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL:
    Download Restriction: no

    Paper provided by Tallinn School of Economics and Business Administration, Tallinn University of Technology in its series Working Papers with number 115.

    in new window

    Length: 15
    Date of creation: 2004
    Date of revision:
    Publication status: Published in Working Papers in Economics.School of Economics and Business Administration,Tallinn University of Technology (TUTWPE), Pages 185-198
    Handle: RePEc:ttu:wpaper:115
    Note: Many thanks to the organisations and institutions which supplied data for this study in the context of bright transitional moment. Support from the Estonian Science Foundation (Project 5185) is greatly acknowledged by the author.
    Contact details of provider: Postal: Kopli tn. 101, 11712 Tallinn
    Phone: +(372)620 3535
    Fax: +(372)620 3946
    Web page:

    More information through EDIRC

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Obstfeld, Maurice & Taylor, Alan M., 1997. "Nonlinear Aspects of Goods-Market Arbitrage and Adjustment: Heckscher's Commodity Points Revisited," Journal of the Japanese and International Economies, Elsevier, vol. 11(4), pages 441-479, December.
    2. Boštjan Jazbec, 2002. "Real Exchange Rates in Transition Economies," William Davidson Institute Working Papers Series 482, William Davidson Institute at the University of Michigan.
    3. John F. Helliwell & Alan Chung, 1991. "Macroeconomic Convergence: International Transmission of Growth and Technical Progress," NBER Chapters, in: International Economic Transactions: Issues in Measurement and Empirical Research, pages 388-436 National Bureau of Economic Research, Inc.
    4. Coricelli, Fabrizio & Jazbec, Bostjan, 2004. "Real exchange rate dynamics in transition economies," Structural Change and Economic Dynamics, Elsevier, vol. 15(1), pages 83-100, March.
    5. Charles Engel & John H. Rogers, 1995. "How wide is the border?," Research Working Paper 95-09, Federal Reserve Bank of Kansas City.
    6. Kenneth A. Froot & Michael Kim & Kenneth Rogoff, 1995. "The Law of One Price Over 700 Years," NBER Working Papers 5132, National Bureau of Economic Research, Inc.
    7. De Gregorio, Jose & Giovannini, Alberto & Krueger, Thomas H, 1994. "The Behavior of Nontradable-Goods Prices in Europe: Evidence and Interpretation," Review of International Economics, Wiley Blackwell, vol. 2(3), pages 284-305, October.
    8. Jose De Gregorio & Alberto Giovannini & Holger C. Wolf, 1993. "International Evidence on Tradables and Nontradables Inflation," Working Papers 93-17, New York University, Leonard N. Stern School of Business, Department of Economics.
    9. Manzur, Meher, 1991. "Purchasing Power Parity and Relative Price Variability: The Missing Link?," Australian Economic Papers, Wiley Blackwell, vol. 30(56), pages 128-47, June.
    10. Maurice Obstfeld & Kenneth Rogoff, 2001. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," International Trade 0012003, EconWPA.
    11. Richard Clarida & Jordi Gali, 1994. "Sources of Real Exchange Rate Fluctuations: How Important are Nominal Shocks?," NBER Working Papers 4658, National Bureau of Economic Research, Inc.
    12. Sanja Grubacic, 2000. "Real exchange rate determination in eastern Europe," Atlantic Economic Journal, International Atlantic Economic Society, vol. 28(3), pages 346-363, September.
    13. Weber, Axel A., 1997. "Sources of Purchasing Power Disparities between the G3 Economies," Journal of the Japanese and International Economies, Elsevier, vol. 11(4), pages 548-583, December.
    14. Richards, Anthony J. & Tersman, Gunnar H. R., 1996. "Growth, Nontradables, and Price Convergence in the Baltics," Journal of Comparative Economics, Elsevier, vol. 23(2), pages 121-145, October.
    15. Holger C. Wolf, 2000. "Intranational Home Bias In Trade," The Review of Economics and Statistics, MIT Press, vol. 82(4), pages 555-563, November.
    16. Marcus Asplund & Richard Friberg, 2001. "The Law of One Price in Scandinavian Duty-Free Stores," American Economic Review, American Economic Association, vol. 91(4), pages 1072-1083, September.
    17. John H. Rogers, 1995. "Real shocks and real exchange rates in really long-term data," International Finance Discussion Papers 493, Board of Governors of the Federal Reserve System (U.S.).
    18. Ronald MacDonald & Luca Antonio Ricci, 2001. "PPP and the Balassa Samuelson Effect: The Role of the Distribution Sector," IMF Working Papers 01/38, International Monetary Fund.
    19. Kornélia Krajnyák & Jeromin Zettelmeyer, 1998. "Competitiveness in Transition Economies: What Scope for Real Appreciation?," IMF Staff Papers, Palgrave Macmillan, vol. 45(2), pages 309-362, June.
    20. Alexius, Annika, 1999. "Sources of Real Exchange Rate Fluctuations in the Nordic Countries," Working Paper Series 90, Sveriges Riksbank (Central Bank of Sweden).
    21. Hamid Faruqee, 1995. "Pricing to Market and the Real Exchange Rate," IMF Working Papers 95/12, International Monetary Fund.
    22. International Monetary Fund, 2001. "Interpreting Real Exchange Rate Movements in Transition Countries," IMF Working Papers 01/56, International Monetary Fund.
    23. Bergstrand, Jeffrey H, 1991. "Structural Determinants of Real Exchange Rates and National Price Levels: Some Empirical Evidence," American Economic Review, American Economic Association, vol. 81(1), pages 325-34, March.
    24. Dr Martin Weale, 1998. "UK Consumption in the long run: the determinants of consumer spending 1925-1995," NIESR Discussion Papers 138, National Institute of Economic and Social Research.
    25. David Papell, 1998. "The Great Appreciation, the Great Depreciation, and the Purchasing Power Parity Hypothesis," Working Papers 30, Oesterreichische Nationalbank (Austrian Central Bank).
    26. Hilde C. Bjørnland, 1998. "Economic Fluctuations in a Small Open Economy – Real versus Nominal Shocks," Discussion Papers 215, Statistics Norway, Research Department.
    27. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, Oxford University Press, vol. 84(3), pages 488-500.
    28. Louis Dorrance Johnston & Menzie David Chinn, 1997. "Real Exchange Rate Levels, Productivity and Demand Shocks: Evidence from a Panel of 14 Countries," IMF Working Papers 97/66, International Monetary Fund.
    29. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-76, December.
    30. Weber, Axel A., 1997. "Sources of Purchasing Power Disparities Between the G3-Economies," Discussion Paper Serie B 419, University of Bonn, Germany.
    31. Lionel Halpern & Charles Wyplosz, 1996. "Equilibrium Exchange Rates in Transition Economies," IMF Working Papers 96/125, International Monetary Fund.
    32. Yin-Wong Cheung & Kon S. Lai, 1999. "On Cross-Country Differences in the Persistence of Real Exchange Rates," CESifo Working Paper Series 218, CESifo Group Munich.
    33. Jahanara Begum, 2000. "Real Exchange Rates and Productivity: Closed-Form Solutions and Some Empirical Evidence," IMF Working Papers 00/99, International Monetary Fund.
    34. Bhagwati, Jagdish N, 1984. "Why Are Services Cheaper in the Poor Countries?," Economic Journal, Royal Economic Society, vol. 94(374), pages 279-86, June.
    35. Annika Alexius & Jonny Nilsson, 2000. "Real Exchange Rates and Fundamentals: Evidence from 15 OECD Countries," Open Economies Review, Springer, vol. 11(4), pages 383-397, October.
    36. Sharmini Coorey & Mauro Mecagni & Erik Offerdal, 1996. "Disinflation in Transition Economies: The Role of Relative Price Adjustment," IMF Working Papers 96/138, International Monetary Fund.
    37. Hsieh, David A., 1982. "The determination of the real exchange rate : The productivity approach," Journal of International Economics, Elsevier, vol. 12(3-4), pages 355-362, May.
    38. Lastrapes, William D, 1992. "Sources of Fluctuations in Real and Nominal Exchange Rates," The Review of Economics and Statistics, MIT Press, vol. 74(3), pages 530-39, August.
    39. Zoltán M. Jakab & Mihály András Kovács, 1999. "Determinants of Real Exchange Rate Fluctuations in Hungary," MNB Working Papers 1999/6, Magyar Nemzeti Bank (Central Bank of Hungary).
    40. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
    41. Irving B. Kravis & Robert E. Lipsey, 1982. "Towards an Explanation of National Price Levels," NBER Working Papers 1034, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:ttu:wpaper:115. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Urve Venesaar)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.