Tuesday, July 27, 2010

Big Mac Index

Though I have already decided not to pursue an even higher degree, I do agree that research do come with some perks. There's a substantial amount of free time... and as a result, I end up reading up on fun stuffs like this -> Bugernomics. The dear people in the Economist came up with a measure for currency valuation based on the theory of purchasing-power parity. Theory of purchasing-power parity (PPP) argues exchange rates should move to equalize the price of an identical basket of goods between two countries. In their case, their basket consist of a single Big Mac hamburger and the fair-value benchmark is the exchange rate that leaves burgers costing the same in America as elsewhere. So they aptly named it - the Big Mac Index. Below is a result of their findings.

"oh no. based on this results.
burgers should cost 18% more in Singapore!"-cj

Before you frantically try to dump your euros just because this results says that its overvalued. They have kindly added a disclaimer. "The Big Mac numbers should be taken with a generous pinch of salt. They are not a precise predictor of currency movements. The bulk of a burger’s cost depends on local inputs such as rent and wages, which tend to be lower in poor countries. Consequently PPP comparisons are more reliable between countries with similar levels of income."

i would stay away from hamburgers if i were to go to Norway. 7.20 usd for a Big Mac. seriously?!?

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