Jul

8

Big Mac

"If the Big Mac Index says that a currency is undervalued, it tends to appreciate," [Univ. of Florida Professor] Denslow said. Palm Beach Post.

I am not sure that Dr. Denslow has tested it but the Economist magazine appears to be the source of the idea. Pam Woodall, the Economist's Asia Economics Editor, evidently originated the Big Mac index . Others appear to have tried to refine it a bit. Perhaps the Big Mac index is a rough indicator useful as a starting point for more research.

The following UBS AG paper uses the index along with other consumer items but in the form of how many minutes of working time it takes to purchase the items. See page 11 of pdf.

And here is Burgernomics: A Big Mac Guide to Purchasing Power Parity [20 page PDF] from the St. Louis Fed and an online writeup from the Dallas Fed.


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