earticle

영어

Our study is to identify the effectiveness of the Big Mac index of East Asian countries which is the representative index of Law of one price(Loop) by using variables related to the price index and exchange rates. Purchasing power parity(PPP) which is the theoretical background of Loop is that price indices of various countries determine the long-term exchange rate. It is classified into absolute purchasing power parity(APPP) and relative purchasing power parity(RPPP). APPP is described the exchange rate difference between countries’ price indices, but RPPP is described the change in the exchange rate with a change of the countries' prices indices. The theory used for empirically testing is RPPP. In our study, the Big Mac Index which is MacDonald's representative product sold for the same quality and specifications all over the world for more than 30 years is used to evaluate the effectiveness of PPP. Empirical tests by using yearly data from 2000 to 2017 to Korea, Japan, Hong Kong, Singapore, Thailand, Malaysia. Indonesia, and the Philippines were conducted through panel analysis. As a result of the empirical analysis, variables relating to the price index of did not show statistical significance for the Big Mac index, but statistical significance was shown with variables such as the rate of change in the nominal exchange rate and the exchange rate of purchasing power. In order to hold the robustness, OECD countries and the countries using the floating exchange rate system in samples are analyzed. Then, the results are also similar. Unlike previous empirical studies where the difference the change in the level of price indices between countries related long-term the effectiveness of purchasing power, our study used 17-year time series data to analyze the effect of the change in price index on the Big Mac index however long-term effectiveness has not been verified. The deviation of the Big Mac index and purchasing power is also explained by transaction costs, non-comparative barriers, and legal barriers. Our study implies that the Big Mac Index, which is representative of Loop, did not show statistical significance with the changes in the price level of East Asian countries since 2000, but it is related to the exchange rate change of the nominal exchange rate and the purchasing power. Moreover the latter has a positive relationship. Future research will be conducted by comparing PPP between OECD countries in Asia and Europe and the study of the effectiveness of PPP using the Latte Index by Starbucks and the iPhone Index by Apple.