Beyond Burgernomics and MacParity: Exchange Rate Forecasts Based on the Law of One Price
AbstractCumby (1996) suggests that (i) deviations from MacParity are stationary, (ii) relative Big Mac prices converge rapidly and (iii) provide significant information on likely future exchange rate movements. This paper examines to what extent these results can be generalised to other micro-level price data such as those provided in the UBS surveys Prices and Earnings round the Globe. In many respects, the MacParity findings do not constitute a special case, although they are sensitive to sample period and numeraire currency. Surprisingly, estimates based on aggregate CPI data for the same sample periods provide qualitatively similar results.
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Bibliographic InfoPaper provided by International Conferences on Panel Data in its series 10th International Conference on Panel Data, Berlin, July 5-6, 2002 with number D4-1.
Date of creation: Mar 2002
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Big Mac Index; micro-level price data; law of one price; exchange rate forecasts;
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- F30 - International Economics - - International Finance - - - General
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