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(s): Li Lian Ong
Year: 2003
Language: English
Pages: 143
Cover......Page 1
Contents......Page 8
List of Tables......Page 10
List of Figures......Page 11
Foreword......Page 12
Preface......Page 14
Acknowledgements......Page 16
Notes on the Contributors......Page 17
Introduction......Page 18
Absolute and relative parities......Page 19
The index-number problem......Page 21
Determining the equilibrium exchange rate......Page 26
The productivity bias hypothesis......Page 29
Further qualifications to PPP......Page 34
Summary......Page 40
2 The Growing Evidence on Purchasing Power Parity......Page 46
Introduction......Page 47
The 'trends' in PPP research......Page 48
Empirical evidence in the 1990s......Page 51
The Economist's Big Mac Index......Page 58
Summary......Page 60
3 The Economics of the Big Mac Standard......Page 68
Introduction......Page 69
The data......Page 70
The valuation of currencies......Page 72
Geographic effects......Page 78
Further tests of Big Mac PPP......Page 82
Relative parity......Page 85
Possible causes of deviations from parity......Page 86
Is the Big Mac all tradeable?......Page 88
Improving the Big Mac Index: the No-Frills Index......Page 93
Conclusion......Page 94
Appendices......Page 95
Introduction......Page 105
Currencies in crisis......Page 107
5 Big Macs and Wages To Go, Please: Comparing the Purchasing Power of Earnings Around the World......Page 109
Introduction......Page 110
On paycheques and purchasing power......Page 112
Who gets what where?......Page 115
Further extensions: accommodation and transportation......Page 117
Conclusion......Page 122
6 Professors and Hamburgers: An International Comparison of Real Academic Salaries......Page 126
Introduction......Page 127
Comparisons of purchasing power......Page 130
Quality of life......Page 134
Conclusion......Page 135
E......Page 140
L......Page 141
T......Page 142
W......Page 143
