The big mac index - ECONOMÍA ESPAÑOLA Y MUNDIAL PRÁCTICA PDF

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The Big Mac index JANUARY 12TH 2017, BY D.H. & R.L.W. 53K

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THE Big Mac index was invented by The Economist in 1986 as a lighthearted guide to whether currencies are at their “correct” level. It is based on the theory of purchasing-power parity (PPP), the notion that in the long run exchange rates should move towards the rate that would equalise the prices of an identical basket of goods and services (in this case, a burger) in any two countries. For example, the average price of a Big Mac in America in January 2017 was $5.06; in China it was only $2.83 at market exchange rates. So the "raw" Big Mac index says that the yuan was undervalued by 44% at that time. Burgernomics was never intended as a precise gauge of currency misalignment, merely a tool to make exchange-rate theory more digestible. Yet the Big Mac index has become a global standard, included in several economic textbooks and the subject of at least 20 academic studies. For those who take their fast food more seriously, we have also calculated a gourmet version of the index. This adjusted index addresses the criticism that you would expect average burger prices to be cheaper in poor countries than in rich ones because labour costs are lower. PPP signals where exchange rates should be heading in the long run, as a country like China gets richer, but it says little about today's equilibrium rate. The relationship between prices and GDP per person may be a better guide to the current fair value of a currency. The adjusted index uses the “line of best fit” between Big Mac prices and GDP per person for 48 countries (plus the euro area). The difference between the price predicted by the red line for each country, given its income per person, and its actual price gives a supersized measure of currency underand over-valuation.

The Big Mac index

January 2017 US dollar

Select base currency:

Raw index

Adjusted index

Raw index

Zoom to

Under(–)/over(+) valuation against the dollar, %

-80

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Switzerland Norway Sweden Venezuela Brazil United States Canada Israel Uruguay Australia Denmark New Zealand Euro area Costa Rica Singapore Britain South Korea Chile Pakistan UAE Argentina Thailand Colombia Japan

Undervalued by: >50% 25-50%

Peru Saudi Arabia Hungary Czech Republic China

Overvalued by: 10-50% –/+ 10%

10-25%

50-100% >100%

Turkey Philippines Vietnam India Hong Kong

Big Mac prices v GDP per person

Big Mac price*, $

Latest 8

Sri Lanka Indonesia Poland Mexico Taiwan

6 4 2 0

0

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GDP per person, 2015, $'000 Sources: McDonald's; Thomson Reuters; IMF; The Economist

100

Russia South Africa Malaysia Ukraine Egypt *At market exchange rate

The 'select base currency' button allows you to choose from five base currencies: the yuan, the euro, the yen, sterling and the US dollar. You can also choose to see the index in its original 'raw' form, or adjusted for GDP per person. By default, the panel at the bottom displays a scatter chart plotting the local price of a Big Mac (expressed in the current base currency) against GDP per person in that country. Select individual points for details. As you explore the map, the scatter chart will be replaced by a line chart plotting the highlighted country's under- or over-valuation against the current base currency over time. You can select a country on the map to 'freeze' it (with the exception of Internet Explorer), allowing you to mouse-over/tap the line chart and see detailed indicators for your selection over time. To 'unfreeze' the map, click/tap on the highlighted country again. : In an earlier version of this chart we miscalculated the GDP per person-adjusted valuations. This was corrected on January 23rd 2017. Sorry. Read “The all-meaty dollar”, our January 2017 Big Mac index assessment

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1 2 3 4 5 6 7 8 9 … next › last » Jan 31st 2013, 15:27

"Burgernomics was never intended as a precise gauge of currency misalignment, merely a tool to make exchange-rate theory more digestible." #youreridiculous. Recommend

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Jan 31st 2013, 15:40

what was a joke of some kind in the beginning of big mac index is now being promoted as some serious entry to economics. but with zero consideration of difference of dietary cultures of locale for one thing, big mac index in substance remains to be just that, a joke. Recommend

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Jan 31st 2013, 15:42

Economists don't understand that the same burger means different things in different countries. In some countries, McDonalds are upscale restaurants that represent western life style, while in some other countries, they're just unhealthy fast food. They are fundamentally not the same value. Recommend

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Jan 31st 2013, 15:51

Q: If the price of Swiss chocolate dropped by 63.1% to what the big mac implies is a fair price, why would anyone eat a burger ever again? Recommend

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Jan 31st 2013, 15:55

To everyone criticising this index: It has done better than many proffessionals eg it predicted that the Euro was overvalued on launch (most professionals didnt catch this). To TE: You get told every time, you should know by now, Argentina have imposed price controls on Big Macs in order to show up well in this index, can they be excluded yet? Recommend

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in reply to Austin James Jan 31st 2013, 16:21

Don't get in a flap jack

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Recommend

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in reply to semicontinuous Jan 31st 2013, 16:24

I retract my statement. Recommend

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Jan 31st 2013, 16:59

Interesting that the currencies of large oil producers are both over valued (Venezuela, Norway) and under valued (Saudi, Russia). . And, what's up with S. Africa and India? Recommend

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Jan 31st 2013, 17:07

The thing I've never understood about this index is a case like venezuela. I lived there awhile back and things were rediculously cheap. However, the big mac was not. The big mac I remember cost more there than in my home country of the USA. I thought it was weird that people would eat there consiedering a nearby venezuelan restuarant would charge about US $1.00 for a 4 course lunch. I did eat at mcds a couple of times and the locals there seemed to be a type of person who wanted to show off money or say something about their status by being able to eat in a "fancy" western style restaurant. Recommend

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Jan 31st 2013, 17:08

The January 2012 Big Mac Index had it costing $4.20 . Today's $4.37 means an inflation rate of 4.05% in 2012. . NPWFTL Regards Recommend

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Jan 31st 2013, 17:14

I love the BigMac Index. But let's not forget. We know since the late 19th century, thanks to Austrian Economists Menger and Boehm-Bawerk, that the value of goods is subjective and subjective only. Recommend

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in reply to hedgefundguy Jan 31st 2013, 17:14

How about the official inflation rate of US in 2012? Is it 4% or lower/higher? Recommend

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Jan 31st 2013, 17:32

Could we try measuring this rather in the price of the döner kebap and see if there is some correlation? It would be fun to learn something from this! :D Recommend

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Jan 31st 2013, 17:40

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Perhaps, we could try also measuring this in the price of the rice bowls to find out if there is some type of correlation? It would be fun to learn something a little more meaningful (not that this index is useless of course) but just to make it a little more global and avoid to continue reproducing western-centric stereotypes of cultural and economic values. It may be about time to change the McDonald's measure for some tacos and/or döner kebaps. :) Recommend

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Jan 31st 2013, 17:42

But you forgot to mention that in Argentina there are "two dollars". If you consider the official or the blue dollar, the result is different than you show here. Recommend

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Jan 31st 2013, 17:48

The key to this index is the raw index vs the index adjusted for GDP per person. In the Raw data it looks as thought the US maintain's a reasonably stable currency, but once you click on the adjusted for GDP figure it is clear that the USD has devalued sharply compared to a basket of currencies. Australia has also moved from from the top part of the chart to close to the bottom! As this infographic on currency wars shows the race to the bottom has already begun. http://ow.ly/hiSDO Recommend

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Jan 31st 2013, 17:55

But you forgot to mention that in Argentina there are "two dollars". If you consider the official or the blue dollar, the result is different than you show here. Meanwhile, the price was manipulated by the goverment, doing the Big Mac cheaper than other countries (in "official dollar" terms). Recommend

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in reply to miseshayekrothbard Jan 31st 2013, 18:06

It was lower, 1.7% (not Seasonally Adjusted) . http://www.bls.gov/news.release/cpi.nr0.htm . NPWFTL Regards Recommend

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Jan 31st 2013, 18:22

I'd love you to do this same treatment for a gallon/liter or regular gasoline as well. Recommend

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in reply to latrucha Jan 31st 2013, 18:26

I'd believe an egomaniac like Chavez would put price controls on Big Mac's just so his country appeared "first" on this list. Recommend

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