The Big Mac index as Financial Indicator

The Economist's Big Mac index is based on the theory of purchasing-power parity (PPP), according to which exchange rates should adjust to equalise the price of a basket of goods and services around the world. Our basket is a burger: a McDonald’s Big Mac

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http://www.economist.com/markets/indicators/displaystory.cfm?story_id=8649005

Seriously, I think you just drive yourself and everyone around you crazy if you compare and convert everything.  It's best just to live and think and buy in the currency of the country you're living in. 

Seriously, I think you just drive yourself and everyone around you crazy if you compare and convert everything.  It's best just to live and think and buy in the currency of the country you're living in. 

I completely agree, Mindy. After living in 5 countries in less than 3 years, I had to learn that very quickly, otherwise you'll make yourself crazy.

Free publicity for MacDonald's

Seriously, I think you just drive yourself and everyone around you crazy if you compare and convert everything.  It's best just to live and think and buy in the currency of the country you're living in. 

So very true.  Everytime my parents make some comment about how expensive London was for them, I just tell them it's not like that if you actually LIVE here.  Everything is totally relative.

I've lived here for two and a half years and I'm constantly comparing prices.    I guess it's because I work in investments but I am fascinated by PPP and the Big Mac index.  Despite plenty of certifications I still just don't get the theory behind PPP.  I think it was interesting to see that despite feeling like it's WAY more expensive in Britain than in the US, the price of  a Big Mac is actually not that much higher ($3.22 versus $3.90).  Plus it could be worse - I could live in Norway!  But that's about the only place worse. 

Well considering that cost is partly based on demand . . .

When I move to Geneva, food was so expensive, I lost thirty pounds in three months. Just don't think about it!

Sorry to bring up an old (tired) topic, but I think this sort of stuff is fascinating.  I agree that it's best just to live and think and buy in the currency of the country you're living in.  But, to me at least, some of the comparisons where the product is exactly the same are interesting.

One could argue argue about labor costs and such when making comparisons to the Big Mac index.  So what about something with no labor cost difference?  Slashdot had a great article on the price gap between software in the US and Europe.  A product that is nearly 100% the same  - minus the costs for localized translated versions.

http://tech.slashdot.org/article.pl?sid=08/07/29/1244259&from=rss [nofollow]

A quick comparison between same versions of mainstream software sold in the USA and the EU markets show a big difference in the respective price tags. If you want to buy online, let's say, Adobe's Dreamweaver CS3, you'll have to pay $399 if you live in the States, but a whopping E570 (almost $900 in current exchange rates!) if you happen to buy it in Germany. Same story for Microsoft's newest products: Expression Web 2 in America costs only $299 new, but try that in Italy and they will probably ask you no less than E366 ($576!). How can such an abyssal difference be explained? I understand there are some added costs for the localized translated versions, but I also thought the Euro was supposed to be outbuying the dollar. Where's the catch?"

The comments are very interesting (some funny) and definitely worth a read.

Peace!