BigMac'o Nomics

BigMac'o NOMICS The role of Big Mac in analysing global economics Since Sept. 1986 one Big Mac 's been telling a story In September 1986, The Econo- mist introduced the Big Mac The data for calculating Big By comparing prices of Big Mac in different countries, we Mac Index is based on a single Index as a „digestive" way to ex- product, McDonald's Big Mac, are able to analyse whether plain exchange rates theory and purchasing power parity. Since then, the Index has been pub- lished yearly. which is sold in about 120 the same amount of money countries. Big Mac represents a basket of goods used for es- timating the purchasing can buy as the same amount of goods (Big Macs) across the globe. Thus, we can test the power parity (PPP) of curren- purchasing power parity of dif- cies. ferent currencies. Prices of Big Mac around the world Prices in 2011 expressed in US Dollar Sweden 7,64 Norway 8,31 Poland 3,09 Canada 5,00 Denmark 5,48 Pakistan 2,38 Russia 2,70 Euro zone 4,93 UK 3,89 Czech R. 4,07 Turkey 3,77 USA 4,07 China 2,27 Japan 4,08 Switzerland 8,06 Thailand 2,35 Egypt 2,36 Mexico 2,74 Saudi Arabia 2,67 Malaysia 2,42 India 1,89 Brasil 6,16 Peru 3,65 Indonesia 2,64 South Africa 2,87 Argentina 4,84 Australia 4,94 Purchasing Power Parity of currencies According to purchasing power parity theory, exchange rates should move toward a rate, that would equilise the price of a basket of identical goods around the world. In other words, Big Mac should cost the same, no mater where we go to buy it (of course, when coverted to the same cur- rency, in this case US Dollar). Equal 0% The price of Big Mac in Czech Republic, when conveted from Czech Koruna to US Dollar, is the same as the price of Big Mac in the USA. 4,07$ US Big Mac - 4,07$ If you travel from Czech Republic to the USA, you can buy the same amount of Big Mac in the States as back home. Currencies are at their "correct" level. Czech Republic USA Overvalued +104% The price of Big Mac in Norway, when conveted from Kroner to US Dollar, is 104% higher than the price of Big Mac in the USA. 8,31$ US Big Mac - 4,07$ If you go from Norway to the UŠA, you can buy 104% more Big Macs than in Norway. Norwegian Krone is overvalued against US Dollar by 104%. Norway USA Undervalued The price of Big Mac in India, when conveted from Rupee to US -54% Dollar, is 54% lower than the price of Big Mac in the USA. 1,89$ US Big Mac - 4,07$ A visitor from India will be able to purcha s only half as much Big Mac in the USA compared to India. Indian Rupee is undervalued against US Dollar by 54%. India USA Working time required to buy a Big Mac Based on data from 2009 Price of a product devided by the weighted net hourly wage across 14 professions 1 minute in minutes Tokyo 12 Japan New York 14 USA Sydney 14 Australia Montreal 15 Canada Vienna 17 Austria Oslo 21 Norway Global Average 37 Mumbai 61 India Manila 88 Philippines Caracas 126 Venezuela Mexico City 129 Mexico Jakarta 136 Indonesia Nairobi 158 Kenya Number of Big Macs a worker can afford after working for 60 minutes Based on data from 2009 Average for workers across 14 professions Tokyo New York Nairobi 0,4 5,0 4,3 18^ 0000 O000 000 జce 0,7 Manila 2,8 1,0 Oslo Mumbai Source: The Economist, Wikipedia, UBS Magda Bardzinska-Frank erfolg-mit-geld.de Jakarta 0,4 Mexico City 0,5 Sydney 4,3 0,5 Caracas 4,0 Montreal 3,5 Vienna