T
HE BIG MAC
index was invented by The Economist in 1986 as a lighthearted guide to whether currencies are at their “correct” level. It is based on the theory of purchasing-power parity (PPP), the notion that in the long run exchange rates should move towards the rate that would equalise the prices of an identical basket of goods and services (in this case, a burger) in any two countries.
Season 9 Episode 23 - The Big Mac Question - Stream / Discussion by Sethisto (Source) It's episode day again! We are coming up on the end of the season with #23 landing at 8:30 AM PST as usual. Watch it on Discovery Family, and enjoy a stream party below while we countdown to it's airing. Jun 22, 2020. Jun 30, 2020.
Burgernomics was never intended as a precise gauge of currency misalignment, merely a tool to make exchange-rate theory more digestible. Yet the Big Mac index has become a global standard, included in several economic textbooks and the subject of dozens of academic studies. For those who take their fast food more seriously, we also calculate a gourmet version of the index for 55 countries plus the euro area.
The GDP-adjusted index addresses the criticism that you would expect average burger prices to be cheaper in poor countries than in rich ones because labour costs are lower. PPP signals where exchange rates should be heading in the long run, as a country like China gets richer, but it says little about today's equilibrium rate. The relationship between prices and GDP per person may be a better guide to the current fair value of a currency.
Big Mac Question
Read more about the Big Mac index in “How big is China’s economy? Let the Big Mac decide”. You can also download the data or read the methodology behind the Big Mac index here.
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