Cheeseburger Price Index

In August 2010 I travelled the following countries. Each country has its own currency. In the end of the journey I got a variety of currencies as a result of a series of money exchanges. Here in this post, I would like to think about exchange rate. How can we understand exchange rates?

• Poland: Złoty(PLN)
• Ukraine: Hryvna(UAH)
• Moldova: Leu (MDL)
• Romania: New Leu (RON)
• Serbia: Dinar (RSD)
• Macedonia: Denar (MKD)
• Albania: Lek (ALL)
• Italy: Euro (EUR)
• Iceland: Krona (ISK)
• Denmark: Krone (DKK)
• Sweden: Krona (SEK)

An idea from economics provides us with basic understanding. The law of one price says that the same good cannot be sold in different place in different prices at the same time in the perfect competition market.

If an apple in Berlin costs 1 EUR and an apple in Hamburg costs 2 EUR, a clever dealer buys an apple in Berlin and sells the apple in Hamburg. He can make a profit. This activity, is called arbitrage, contributes the prices of both cities to approximate into one price. Perhaps the prices will be converged into the range between 1 and 2 Euro. The converged price does not allow arbitrager to give an opportunity to make a profit through arbitrage.

This mechanism can be applied to the international market. This application is known as the purchasing power parity theory. It shows that all changes of price levels result in the changes of exchange rate because the exchange rate is fixed.

Of cause, this theory does not offer the perfect explanation that describes the real world. For example, the PPP does not take transportation costs and time into account. Moreover, one time of service such as a haircut and a use of taxi cannot be transferred from one place to another. People have also preference. Some likes a windows computer while another likes a Mac computer.

Here, there is a question. How much the PPP theory explain the real world? Does it make sense? The British magazine of the Economist has given us interesting observation as "Big Mac Index". In 1986 it was published for the first time. It suggests an idea based on the PPP theory. How much have exchange rates deviated from the exchange rate suggested by the PPP theory? The PPP says that the exchange rate between two currencies should depend on the price levels in the two countries. In this post we can regard the price of Mcdonald's Cheeseburger as the price levels of the two countries. The reason why Mcdonald's cheeseburger has been chosen would be that it is sold in many countries and consists of the same ingredients, size, and quality. I have made the following table as Cheeseburger Price Index.

In Kosovo, Albania, and Iceland I could not find any Mcdonald's shop in August. Perhaps, Mcdonald's does not have shops in these countries.
In every city I visited a Mcdonald's shop and bought a cheeseburger in order to write down the price. In fact, Big Mac might have been better than cheeseburger, but I did not want to eat a Big Mac in every city. I wanted to try local specialties.

According the PPP theory that all Cheeseburgers are sold in the same price in the world, Ukraine's currency is undervalued 42.56% and Denmark's one is overvalued 34.18%. However, the real world consists of affluent and deprived countries. I think these deviations from the Euro indicate that Mcdonald's tells us which country is expensive and which one is cheap on the basis of the price of Cheeseburger. The Cheeseburger Index matches our feeling of the extent to which price levels of these countries are high or low. Thus each deviation seems to me appropriate.

Reference
-Mankiw, Gregory; Macroeconomics 6th ed. Worth Publishing, New York, 2007. pp.141-145
-The Economist; Big Mac index: exchange-rate theory

Mein letztes schönes Wochenende in Krakau

Seit ich in November nach Göttingen umgezögen bin, habe ich leider keine schöne Wochenenden gehabt. Deshalb beschreibe ich mein letztes Wochenende in Krakau am Ende Oktober.

Der 30.10 war mein letzter Samstag in Krakau. Es war ein schöner warmer Tag. Ich bin gegen 8.00 früher als mein normaler Samstag in Krakau aufgestanden, um meine Sachen in die 2 Koffer zu packen. Danach habe ich mein Zimmer fast aufgeräumt. Um 11.00 habe ich einen Spaziergang durch die schöne Krakauer Innenstadt gemacht. Alle Blätter haben sich gelb gefärbt. Es war so schön, dass ich nicht umhin konnte, viele Fotos von Bäumen zu machen. Um 12.00 hatte ich einen Termin bei einer der Freunden auf dem Marktplatz, um sie verabschieden. Wir haben Mittagsessen draußen in ein Restaurant gegesen. Ich habe einen Caeser Salad und eine heiße Schokolade probiert. Um 15.00 habe ich das Stanisław Wyspiański Museum besucht. Ich wollte eines seiner Portraits einer Mädchen sehen, aber es wurde leider nicht im Museum ausgestellt. Um 16.15 habe ich mich mit einer Engländerin vor dem Mcdonald's getroffen. Wir wollten in ein Cafe gehen. Aber das Wetter was so schön, dass wir an dem Fluss Wisła entlag von Wawel, die ehemalige Residenz der polnischen Könige, bis Karzmierz, ein ehemaliges jüdisches Gebiet, spazieren gegangen sind. In Karzmierz haben wir eine Kirche besucht. Dann haben wir einen polnischen Glühwein auf dem Neuen Platz (Plac Nowy) getrunken. Nach der Pause sind wir in die Innenstadt zurückgekommen. Um 19.00 haben wir in einem georgischen Restaurant Abendessen gegessen. Eine georgische Suppe, eine kleine georgische Pizza, ein georgisches Tortilla waren lecker, aber eine georgische Tee war eine Entäuschung. Um 22.00 habe ich der Engländerin auf Wiedersehen gesagt. Am nächsten Tag bin ich nach Göttingen gefahren. Es was einer der besten Tage, die ich in Krakau erlebt habe. Ich vermisse mein Leben in Krakau.

(Diese Post wurde als eine Hausaufgabe meines Deutschkurses geschrieben.)

Travel Expenses

In this post, I would like to review my travel expenses this time. Interestingly, all the 10 countries have their own currencies. Europe has the common currency Euro, but there are still so many countries where the Euro has not been circulated. This fact also makes me realise that I have travelled round the edge of Europe. The following are the 10 currencies I used this month.

• Ukraine: Hryvna(UAH)
  
• Moldova: Leu (MDL)
  
• Romania: New Leu (RON)
  
• Serbia: Dinar (RSD)
  
• Macedonia: Denar (MKD)
  
• Albania: Lek (ALL)
  
• Italy: Euro (EUR)
  
• Iceland: Krona (ISK)
  
• Denmark: Krone (DKK)
  
• Sweden: Krona (SEK)
  

My travel expenses have been financed by one credit card. When I sorted and calculated my bill by currency units, each amount tells me how much I have spent in each country. As my financial source is the Japanese Yen (JPY), all calculations have been done in JPY. For 30 days trip I spent total JPY 225,761 (EUR 2,109.28). 30% of transactions have been payed in cash after withdrawal at bancomats. The following pie chart shows this total expenses by country.

As we can see, the Nordic countries cost a lot. Of course, I have to consider how many days I was in one country. However, 60% of the amount was spent in the week 4 (Italy, Iceland, Denmark, and Sweden).

Trvelling expenses consist mainly of accommodation, transportation, food, and admissions for museum or gallery. I do not go shoppin! The following pie chart shows what kind of purpose I have spent. "other" means mainly food.

The reason why the proportion of "transportation" is so large would be that I bought flight tickets in the end of July, I did not book tickets on the internet in advance, and changed bookings, missed the train, and re-purchased many times. This part could have been squeezed. In addition, The fact that I took many overnight trains, buses, and ferry also contribute to the transportation part larger.

Overall, I could enjoyed strong Japanese Yen. Although I felt Denmark and Sweden were extremely expensive, Iceland was relatively affordable. Perhaps, it would have been impossible to pay if I had visited the Nordic 3 years ago...

I think that credit card is powerful to review where money is going in travelling.

Summer Trip 2010

My summer trip was over yesterday. This time I have visited “the edge of Europe” where I had never been and it costs a lot if I took a trip from Tokyo. I reckon that the “edge” would mean countries that are not a member of the European Union, have not adopted the Euro currency, or the recognition of their independence is in question. I think that their geographical locations are definitely Europe. They are really far from Tokyo and there are no direct flights from Tokyo (except Copenhagen), thus I could take advantage of living in Europe at the moment. I thought the following things concerning the travel route the day before the departure of 28.07.

• Week 1: the eastern Ukraine, where I had not been;
  
• Week 2: Moldova and Transylvania, where I had wanted to visit for years;
  
• Week 3: the former Yugoslav countries and Albania, especially Macedonia and Albania where I had not been;
  
• Week 4: the Nordic countries, where a weekend trip to Oslo in July was really impressive;
  

After all, the countries I have visited this time are following;

• Week 1: Ukraine
  
• Week 2: Moldova and Romania
  
• Week 3: Serbia, Macedonia, Albania, and Italy
  
• Week 4: Iceland, Denmark, and Sweden
  

If you recognise Transnitria and Kosovo as an independent state, you can put on the list although Kosovo is more internationally recognised.

There are some principles to be mentioned. These are substantial essence of my trip.

• to get on the train as many and as long as possible, especially overnight trains;
  
• no bookings except for flights that make the travel route flexible;
  
• an Italian sea port Trieste, where my peer reviewing paper in Groningen was written on the region, should be a must-visit place;
  
• to walk as much as possible in order to experience the size of cities;
  
• to be number and price sensitive in order to recognise the economic development;
  
• to enjoy the local food;
  

Taking the above into account, the route was drawn on the following pic. The total 11700 Km.

The trip itself was great and I totally enjoyed the entire journey. One thing I have to feel a sense of regret is that the duration of my stay in the Nordic countries. I was supposed to travel one more week, but my intern boss offered to join a workshop in the end of August. Thus I had to shorten my stay in Denmark and Sweden. I Perhaps, I have to visit the next time.

I would like to post something about this travel later if I have time.