Британский Big Mac Index за 1996 год
where's the beef?
seriously should you take the Big Mac Index?
years on, The Economist's Big Mac index is still going strong. Mad-cow
disease notwithstanding, it is time to dish up our annual feast of
burgcrnomics. The Big Mac index was devised as a light-hearted guide to
whether currencies are at their "correct" level. It is not
intended to be a predictor of exchange-rates, but a tool to make
economic theory more digestible.
is based upon the theory of purchasing-power parity (ppp). This argues that, in the long ran, the exchange rate
between two currencies should move towards the rate that would equalise
the prices of an identica I basket of goods and services in the two
countries. Our basket is a McDonald's Big Mac, which is made to roughly
the same recipe in more than 80 countries. The Big Mac ppp
is the exchange rate that would make a burger cost the same in America
as it does abroad. Comparing this with the actual rate is one test of
whether a currency is undervalued or overvalued.
first column of the table shows the local-currency prices of a Big Mac;
the second converts them into dollars. The average price in America (including
sales tax) is $2.36. However, bargain hunters should head for China,
where a burger costs only $1.15. At the other extreme, the Swiss price
of $4-80 is enough to make Big Mac fans choke on their all-beef patties.
This implies that the yuan is once again the most undervalued currency,
and the Swiss franc the most overvalued.
third column shows Big Mac ppps.
For example, if you divide the Japanese price of a Biggu Makku by the
American one, you get a dollar ppp of ¥122. The actual rate on April
2.2nd was ¥107, implying that the yen was 14% overvalued against the
dollar. Similar sums show that the d-mark
is overvalued by 37%/ In general, the dollar is undervalued against the
currencies of most big industrial economies, but overvalued against
developing countries’ ones.
partly to the dollar's recovery, the other rich-country currencies look
less overvalued than a year ago. Adjustment to ppp
can also come from changes in relative prices rather than exchange-rate
movements. The most dramatic example of this is Japan, where the price
of a Big Mac was slashed by more than a quarter late last year. This
reduced the yen's overvaluation from 100% to 14%.
Big Mac index was originally introduced as a bit of fun. Yet it has
inspired several serious studies over the past year. Li Lian Ong, an
economist at the University of Western Australia, wrote her phD thesis
on the index. She concludes that “the Big Mac index is surprisingly
accurate in tracking exchange rates over the longer term.” Another
study, by Robert Cumby of Georgetown University in Washington DC, also
found that deviations from “McParity” are usually temporary.
a third study, by Michael Pakko and Patricia Pollard of the Federal
Reserve Bank of St Louis, is more sceptical. It concludes that “the
Big Mac does as well—or as poorly—at demonstrating the principles
and pitfalls of ppp as more sophisticated measures.”
study concludes that although Big Mac ppp
may hold in the very long run, currencies can deviate from it for
lengthy periods. There are several reasons why the Big Mac index may be
The theory of ppp falsely
assumes that there are no barriers to trade. High prices in Europe.
Japan and South Korea partly reflect high tariffs on beef. Differences
in transport costs also act as a trade barrier shipping perishable
ingredients such as lettuce and beef is dear.
Prices are distorted by taxes. High rates of value-added tax in
countries such as Denmark and Sweden exaggerate the degree to which
their currencies are overvalued.
The Big Mac is not just a basket of commodities: its price must cover
rents and the cost of other non-traded inputs. Deviations of ppp may
simply reflect differences in such costs.
Profit margins vary among countries according to the strength of
competition. In die United States, the Big Mac has many dose substitutes,
but in other countries McDonald's is able to charge a premium.
these weaknesses, which The Economist has long acknowledged, the
Big Mac index still comes up with ppp estimates that are similar id
those based on move sophisticated methods. Burgernomics has its
methodological flaws, but our money is where our mouths are.