The iPod index.

The Law of One Price and Purchasing Power Parity has long been a topic for research in the Economics field. Many studies have been conducted in testing its validity, including The Big Mac Index published by The Economist back in 1986. This paper aims to shed more light on the topic of PPP, by proposing an alternative index – The iPod Index – using iPod classic as the object of experiment, due to its homogeneity and abundance in today’s world. Following closely to the methodology from Ong (2003), we first conduct valuation analysis using US dollar and the Chinese Yuan as the denominators. Results show that none of the currencies are at parity. Further analysis on several anomalies is also conducted. The 36 countries are also grouped according to regions to see if there are any geographical effects. T-tests are also conducted to see if the individual currency and regions deviate significantly from the parity. The paper then goes on to compare the purchasing power of earnings of an individual if he was to relocate, by regressing wages and GDP per capita in each country. Both regression analysis and real wage differentials show a positive relationship between real wages and GDP per capita. Further analysis on other major factors that affect the purchasing power of a relocating employee, namely accommodation and transportation costs, is conducted and results show that these factors have an effect on his purchasing power and standard of living. Finally, the paper concludes with the limitations, and that PPP does not hold, especially so if an individual was to relocate and paid in local wages.Bachelor of Art