The following is documentation for Michael Pakko and Patricia Pollard's Review article,
"For Here or To Go? Purchasing Power Parity and the Big Mac." This article appears in
the St. Louis Review, January/February 1996. Questions and comments should be
referred to Kelly Morris at 314-444-8519 or morris@stls.frb.org.
Raw data series taken from issues of the Economist are contained in the accompanying
Lotus, version four, spreadsheet file, JF96PP.WK4. Big Mac data refers to the Economist
data. Other data are taken from the Penn World Tables (PWT), version 5.6, data set
which can be obtain online at http://nber.harvard.edu/ , the "Prices and Earnings Around
the Globe," 1994 Edition, from the Union Bank of Switzerland, the IMF's International
Financial Statistics or the International Economic Trends from FRB-St. Louis. See the
spreadsheet for the raw and modified data.
Table 1:
Big Mac -- PPP/((NCU/$)*100) applied to raw data
PWT -- no changes to raw data
Table 2:
Big Mac data -- a summary of data reported in Table A1
Table A1:
Big Mac data -- local currency valuations taken from raw data worksheet
Table A2:
Big Mac data
Inflation differential formula --
ln(((cBigMac/NCU)*(pUS BigMac/NCU)) /
((pBigMac/NCU)*(cUSBigMac/NCU)))
Change in exchange rate formula --
ln((cNCU/$)/(pNCU/$))
c is current year, p is previous year, US is the United States value
Figure 1:
exact data from Table 1
Figure 2:
Big Mac data -- no changes to raw data
Relative Prices is the PPP value
Figure 3:
Big Mac data from Table A2 with no additional changes
Figure in Shaded Box:
Big Mac data using a German Valuation formula --
((BM/NCU)/(G BM/NCU))*(1/((NCU/$)*(1/(G NCU/$)))*100
G is the German value
Figure 4:
See the accompanying spreadsheet for the data.
Figure 5:
Big Mac data -- Pass-through Price is begins at the same point as the Acutal Price
following this formula
(cER/fER)*fBMP,
where c is the current year, ER is the exchange rate, f is the fixed/beginning year,
BMP is the Big Mac price
Figure 6:
See the accompanying spreadsheet for the data.