The Relationship Between the Big Mac Index and Purchasing Power Parity: A Case Study of Colombia
The relevance of the Big Mac as a proxy indicator for Purchasing Power Parity becomes highly significant during periods of high currency depreciation. Are currencies undervalued or overvalued concerning the dollar? Is absolute and relative purchasing power parity (PPP) observed in Colombia? We addre...
| Main Authors: | , , |
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| Format: | Online |
| Language: | spa |
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Universidad Pedagógica y Tecnológica de Colombia
2024
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| Online Access: | https://revistas.uptc.edu.co/index.php/cenes/article/view/16689 |
| _version_ | 1801705973122859008 |
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| author | Chaves Castro, Álvaro Hernando Torres Tamayo, María Constanza Perdomo Strauch, Alvaro Andrés |
| author_facet | Chaves Castro, Álvaro Hernando Torres Tamayo, María Constanza Perdomo Strauch, Alvaro Andrés |
| author_sort | Chaves Castro, Álvaro Hernando |
| collection | OJS |
| description | The relevance of the Big Mac as a proxy indicator for Purchasing Power Parity becomes highly significant during periods of high currency depreciation. Are currencies undervalued or overvalued concerning the dollar? Is absolute and relative purchasing power parity (PPP) observed in Colombia? We address these issues by using a longitudinal data structure and estimating a panel data model. For the Colombian case, there were instances where official reports indicated an appreciation of the peso against the dollar, but the Big Mac index showed a real depreciation. The estimates suggest empirical evidence in favor of absolute PPP, i.e., based on the log-transformed equation estimated using the GLS method, while there is no empirical evidence in favor of meeting PPP in relative terms. |
| format | Online |
| id | oai:oai.revistas.uptc.edu.co:article-16689 |
| institution | Revista Apuntes del Cenes |
| language | spa |
| publishDate | 2024 |
| publisher | Universidad Pedagógica y Tecnológica de Colombia |
| record_format | ojs |
| spelling | oai:oai.revistas.uptc.edu.co:article-166892024-04-02T01:10:33Z The Relationship Between the Big Mac Index and Purchasing Power Parity: A Case Study of Colombia El índice Big Mac y su relación con la paridad del poder de compra en el caso colombiano Chaves Castro, Álvaro Hernando Torres Tamayo, María Constanza Perdomo Strauch, Alvaro Andrés Index appreciation depreciation cointegration exchange rate Colombia índice apreciación depreciación cointegración tasa de cambio Colombia The relevance of the Big Mac as a proxy indicator for Purchasing Power Parity becomes highly significant during periods of high currency depreciation. Are currencies undervalued or overvalued concerning the dollar? Is absolute and relative purchasing power parity (PPP) observed in Colombia? We address these issues by using a longitudinal data structure and estimating a panel data model. For the Colombian case, there were instances where official reports indicated an appreciation of the peso against the dollar, but the Big Mac index showed a real depreciation. The estimates suggest empirical evidence in favor of absolute PPP, i.e., based on the log-transformed equation estimated using the GLS method, while there is no empirical evidence in favor of meeting PPP in relative terms. El Big Mac como indicador proxy de la paridad de poder de compra cobra mucha relevancia durante periodos de alta depreciación de la moneda. ¿Se encuentran subvaluadas o sobrevaloradas las monedas con respecto al dólar?, ¿se cumple la paridad del poder de compra (PPC) absoluta y relativa en Colombia? Mediante una estructura de datos de corte longitudinal y la estimación de un modelo de datos de panel, damos respuesta a estas preguntas. Para Colombia se han observado momentos en los que oficialmente se informaba una apreciación del peso frente al dólar, el índice Big Mac detectó una depreciación real. Las estimaciones indican que existe evidencia empírica a favor de la PPC absoluta, es decir, a partir de la ecuación transformada por logaritmos y estimada mediante el método GLS, mientras que no existe evidencia empírica que apoye el cumplimiento de la PPC en términos relativos. Universidad Pedagógica y Tecnológica de Colombia 2024-01-31 info:eu-repo/semantics/article info:eu-repo/semantics/publishedVersion Peer reviewed Article application/pdf https://revistas.uptc.edu.co/index.php/cenes/article/view/16689 10.19053/uptc.01203053.v43.n77.2024.16689 Apuntes del Cenes; Vol. 43 No. 77 (2024); 73-102 Apuntes del Cenes; Vol. 43 Núm. 77 (2024); 73-102 2256-5779 0120-3053 spa https://revistas.uptc.edu.co/index.php/cenes/article/view/16689/13944 Copyright (c) 2024 Álvaro Hernando Chaves Castro, María Constanza Torres Tamayo, Alvaro Andrés Perdomo http://creativecommons.org/licenses/by-nc-sa/4.0 |
| spellingShingle | Index appreciation depreciation cointegration exchange rate Colombia índice apreciación depreciación cointegración tasa de cambio Colombia Chaves Castro, Álvaro Hernando Torres Tamayo, María Constanza Perdomo Strauch, Alvaro Andrés The Relationship Between the Big Mac Index and Purchasing Power Parity: A Case Study of Colombia |
| title | The Relationship Between the Big Mac Index and Purchasing Power Parity: A Case Study of Colombia |
| title_alt | El índice Big Mac y su relación con la paridad del poder de compra en el caso colombiano |
| title_full | The Relationship Between the Big Mac Index and Purchasing Power Parity: A Case Study of Colombia |
| title_fullStr | The Relationship Between the Big Mac Index and Purchasing Power Parity: A Case Study of Colombia |
| title_full_unstemmed | The Relationship Between the Big Mac Index and Purchasing Power Parity: A Case Study of Colombia |
| title_short | The Relationship Between the Big Mac Index and Purchasing Power Parity: A Case Study of Colombia |
| title_sort | relationship between the big mac index and purchasing power parity a case study of colombia |
| topic | Index appreciation depreciation cointegration exchange rate Colombia índice apreciación depreciación cointegración tasa de cambio Colombia |
| topic_facet | Index appreciation depreciation cointegration exchange rate Colombia índice apreciación depreciación cointegración tasa de cambio Colombia |
| url | https://revistas.uptc.edu.co/index.php/cenes/article/view/16689 |
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