Thursday, January 20, 2011

PPP from the IMF

Here's a short and useful article about purchasing power parity from the IMF.

Read about the Big Mac index at The Economist here, here and here.


  1. It is amazing to see how much growth rates change due to the way they're calculated. The one statistic that stood out to me was concerning China and its wieght in the global economy. It went from holding a weight of 15% when using PPP exchange rates to only 5% when calculated using market-based weights. This is clearly a huge difference and either statistic can be used by a writer to put forward contrasting arguments in regard to China holding/growing into a domimant position in the global economy or to play down the power and influence that they currently have.

  2. Maybe this doesn't matter in the end, but taxes must have some effect on PPP, right? I assume that the Big Mac index prices are retail before sales tax (VAT, etc), but those aren't the only possible taxes. For example, say Sweden has a beef (pun intended) with the special-sauce, and so they levy something like an excise tax on that component, which gets hidden in the final retail price. Does this mean anything when comparing their final price to another country that may subsidize or ignore the sauce?

    I guess in the end it doesn't matter because you can't get the Big Mac without paying the taxes. However, if a government wanted to game their position on the Big Mac index...