Persistence of PPP Deviations in Central and Eastern European Economies

This paper studies the persistence of PPP deviations in terms of half-life (HL) for eleven Central and Eastern European countries. We identify three different shapes of impulse responses; 1) smoothly downward sloping, 2) smoothly falling with a small hitch, and 3) smoothly decaying with a small hump in the beginning. Estimated half-lives do not conform well with the consensus view of three to five years of PPP deviations. The relative appropriateness of the overestimation argument and the underestimation argument for the persistence of PPP deviation is not decisive.