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

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) deviationsÂ¥ 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 deviationsÂ¥ causes. We show that both the basic causes of PPP deviations are determined by potential investorsÂ¥ imagination about the usefulness of the countriesÂ¥ assets.