The Big Mac Index Applications of Purchasing Power Parity

by Ong, Li Lian

• ISBN13: 9781403903105
• ISBN10: 1403903107
• Format: Hardcover
• Copyright: 2003-05-30
• Publisher: Palgrave Macmillan

Summary

This book demonstrates the applications of Purchasing Power Parity (PPP) in exchange rate determination as well as more practical applications of salary comparison and the cost-of living across borders. It uses The Economist 's annual Big Mac Index in place of the traditional basket of services used in PPP research. The author demonstrates that this is a good solution to the index-number problem since it is readily available and more appealing as an international monetary standard. The book also shows how The Big Mac Index could have been used to predict the Asian Currency Crisis and the Mexican Peso stand-off where more traditional economic measures failed.

Author Biography

Li Lian Ong is Senior Analyst, Macquarie Bank.

Table of Contents

List of Tables	ix
List of Figures	x
Foreword	xi
Bill Shields
Preface	xiii
Acknowledgements	xv
Notes on the Contributors	xvi
Purchasing Power Parity: A Survey of the Issues	1	(28)
Introduction	1	(1)
Absolute and relative parities	2	(2)
The index-number problem	4	(5)
Determining the equilibrium exchange rate	9	(3)
The productivity bias hypothesis	12	(5)
Further qualifications to PPP	17	(6)
Summary	23	(6)
The Growing Evidence on Purchasing Power Parity	29	(22)
Yihui Lan
Introduction	30	(1)
The `trends' in PPP research	31	(3)
Empirical evidence in the 1990s	34	(7)
The Economist's Big Mac Index	41	(2)
Summary	43	(8)
The Economics of the Big Mac Standard	51	(37)
Introduction	52	(1)
The data	53	(2)
The valuation of currencies	55	(6)
Geographic effects	61	(4)
Further tests of Big Mac PPP	65	(3)
Relative parity	68	(1)
Possible causes of deviations from parity	69	(2)
Is the Big Mac all tradeable?	71	(5)
Improving the Big Mac Index: the No-Frills Index	76	(1)
Conclusion	77	(1)
Appendices	78	(10)
`Burgernomics' and the ASEAN Currency Crisis	88	(4)
Introduction	88	(2)
Currencies in crisis	90	(2)
Big Macs and Wages To Go, Please: Comparing the Purchasing Power of Earnings Around the World	92	(17)
Introduction	93	(2)
On paycheques and purchasing power	95	(3)
Who gets what where?	98	(2)
Further extensions: accommodation and transportation	100	(5)
Conclusion	105	(4)
Professors and Hamburgers: An International Comparison of Real Academic Salaries	109	(14)
Jason D. Mitchell
Introduction	110	(3)
Comparisons of purchasing power	113	(4)
Quality of life	117	(1)
Conclusion	118	(5)
Index	123