Identifying The Purchasing Power Parity of Indonesia Rupiah (IDR) based on BIG MAC Index

Tongam Sihol Nababan

DOI: https://doi.org/10.23917/jep.v17i2.2711

Abstract

The aim of this study is to identify : (1) profile of exchange rate and purchasing power parity of IDR against US $ based on Big Mac Index compared to the exchange rate of other countries, and (2) the position of the Big Mac Affordability of  Indonesia compared to other ASEAN countries. The results showed that based on Big Mac index during the period April 1998 up to January 2015, IDR exchange rate tends to be undervalued against the USA dollar. The cause of the currency tends to be in a position of undervalued due to the components of non-tradable have not been included in Big Mac index. The index of Big Mac Affordability indicates that there is a great disparity of income between Singapore and five other ASEAN countries. The purchasing power of the real income of the people in Singapore is nearly five times the real income of the people in Indonesia.

Keywords

Big Mac Index, Affordability, exchange rate, purchasing power parity, undervalued and overvalued, tradables and nontradables

Full Text:

PDF

References

Agustin, G. 2009. Analisis Paritas Daya Beli Pada Kurs Rupiah terhadap Dolar Amerika Serikat Periode September 1997 – Desember 2007 dengan Menggunakan Metode Error Correction Model (Analysis of Purchasing Power Parity on Rupiah Exchange Rate Against US Dollar in Period of September 1997 – December 2007 By Using ECM Method), JESP 1 (1): 28 – 38.

Atal, V. 2014. The Big Mac Index And Real-Income Disparity, Journal of Business & Economics Research – Third Quarter 2014, 12 (3) : 231 – 236. URL : http://www.cluteinstitute.com/ojs/index.php/JBER/article/viewFile/8726/8706

Caetano, S., Moura, G. M., Silva, D. S. 2004. Big Mac Parity, Income, and Trade. URL : http://www.ufrgs.br/ppge/pcientifica/2004_07.pdf.

Cheung, Y. W. 2009. Purchasing Power Parity. In Reinert, Kenneth A.; Rajan, Ramkishen S.; Glass, Amy Jocelyn; et al. The Princeton Encyclopedia of the World Economy I. Princeton: Princeton University Press.

Clements, K. W., Lan, Y., and Seah, S. P. 2014. The Big Mac Index Two Decades on an Evaluation of Burgernomics, Business School, The University of Western Australia. URL : http://www.web.uwa.edu.au/data/assets/pdf_file/0003/1082586/10-14_

Daley, J. 2008. Burgernomics: Why the price of a Big Mac may hold the key to better investment returns, The Independent. URL : http://web.archive.org/web/20090124141541/ http://www.independent.co.uk/money/invest-save/.

Levanoni, D. and Darnell, M. 1999. Purchasing Power Parity: Even The Big Mac Can Predict FX Rates. FQ Perspective, October 1999 : 1 – 9 .

URL :https://www.firstquadrant.com/system/files/9910_Purchasing_Power_Parity_0.pdf

Fujiki, H., and Kitamura, Y. 2003. The Big Mac Standard: A Statistical Illustration. URL : http://www.ier.hit-u.ac.jp/Common/publication/DP/DP446.pdf#

Gie, K. K. 2009. Nilai Tukar Rupiah dan Sebuah "Big Mac". URL : www. perpustakaan.bappenas.go.id/lontar/file?file=digital/blob/F2346/.

Peter. 2013. Is the Big Mac Index flawed? URL :

http://macroeconomicanalysis.com/is-the-big-mac-index-flawed/.

Hoefert, A., and Hofer, S. 2006. Prices and Earnings: A Comparison of Purchasing Power around the Globe. UBS AG, Wealth Management Research. URL : http://www.ubs.com/1/ShowMedia/ubs_ch/wealth_mgmt_ch?contentId=103982&name=eng.pdf.

Hsu, T. 2012. Big Mac $6.81 in Switzerland, $1.62 in India, Economist says”, Los Angeles Times. URL : http://articles.latimes.com/2012/jan/18/business/la-fi-mo-big-mac-index-20120118.

He, J. 2013. A Research on RMB Exchange Rate Based on Big Mac Index Empirical Analysis. Journal of Computer Modelling & New Technologies, 17 (5C) : 83 - 86.

IMF World Economic Outlook (WEO). 2016. URL : www.imf.org/external/pubs/ft/weo/2016/update/01

Kuncoro, M. 2015. Indikator Ekonomi (Economics Indicators), Edisi Pertama, Yogyakarta : BPFE.

Lee, D.Y. 2009. Big Mac and Purchasing Power Parity, URL : http://myphlip.pearsoncmg.com/faculty/mpviewie.cfm?vieid=1232&vbcid=1444

Katadata Institute (News & Economic Research). 2015. Sepuluh Penyebab Rupiah Tumbang, URL : www.katadata.co.id/2015.

Madura, J. 2006. International Corporate Finance. Book 1. Jakarta : Salemba Empat.

Marpaung, M. 2011. Analisis Paritas Daya Beli (PPP) Kurs Rupiah Indonesia Terhadap Dollar Amerika Serikat, Tesis, Sekolah Pascasarjana, Universitas Sumatera Utara, Medan.

McConnell, C., and Brue, S. 2004. Microeconomics, 16th Ed. New York : McGraw Hill.

Muttaqiena, A. 2014. Faktor-Faktor Yang Menyebabkan Rupiah Melemah (Factors That Causing the Rupiah Weaken). URL : http://www.seputarforex.com/artikel/rupiah/lihat.php?id=157900

O'Brien, Thomas J. and Ruiz de Vargas. 2016. The Adjusted Big Mac Methodology: A Clarification (April 16, 2016). Forthcoming Journal of International Financial Management and Accounting. URL : http://ssrn.com/abstract=2656881.

Olivon, B. 2013. Big Mac Index Shows That The Real Continues To Be Over-valued. URL : http://exame.abril.com.br/english/brazil-now/big-mac-index-shows-that-the-real-continues-to-be-over-valued.shtml.

Ong, L. L. 2003. The Big Mac Index Applications of Purchasing Power Parity. New York : Palgrave Macmillan.

Pakko, M. R., and Pollar, P. S. 2003. Burgernomics: A Big Mac Guide to Purchasing Power Parity. The Federal Reserve Bank of St. Louis. URL : https://research.stlouisfed.org/publications/review/03/11/pakko.pdf

Rooney, B. 2015. $7.54 for a Big Mac? Only in Switzerland. CNN Money (New York). URL : http://money.cnn.com/2015/01/22/news/big-mac-index/

The Economist. 2015. The Big Mac Index : Historical Data from the Economist’s Big Mac Index. URL : http://bigmacindex.org/

Wibowo, T., Amir., T. 2005. Faktor-Faktor Yang Mempengaruhi Nilai Tukar Rupiah, Jurnal Kajian Ekonomi dan Keuangan, Departemen Keuangan, 9 (4) : 1 – 27. URL : https://mashidayat.files.wordpress.com/2007/12/02-faktor-yang-mempengaruhi-nilai-tukar-kek-des-2005.pdf

Wikipedia. 2016. Indeks Big Mac. URL :

https://id.wikipedia.org/wiki/Indeks_Big_Mac).

Article Metrics

Abstract view(s): 1507 time(s)
PDF: 651 time(s)

Refbacks

  • There are currently no refbacks.