The Big Mac Index, introduced by The Economist magazine more than two decades ago, claims to provide the ‘true value’ of a large number of currencies. This paper assesses the economic value of this index. We show that (i) the index suffers from a substantial bias; (ii) once the bias is allowed for, the index tracks exchange rates reasonably well over the medium to longer term in accordance with relative purchasing power parity theory; (iii) the index is at least as good as the industry standard, the random walk model, in predicting future currency values for all but short-term horizons; and (iv) future nominal exchange rates are more responsive than prices to currency mispricing. While not perfect, at a cost of less than $US10 per year, the index seems to provide good value for money.
Source: “The Big Mac Index two decades on: an evaluation of burgernomics” from International Journal of Finance & Economics
TheRedArchive is an archive of Red Pill content, including various subreddits and blogs. This post has been archived from the blog bakadesuyo.
Title | Does the price of McDonald’s food indicate the true value of a country’s money? |
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Author | Eric Barker |
Date | November 20, 2010 6:00 PM UTC (13 years ago) |
Blog | bakadesuyo |
Archive Link |
https://theredarchive.com/blog/bakadesuyo/does-the-price-of-mcdonalds-food-indicate-the-true.16530 https://theredarchive.com/blog/16530 |
Original Link | https://www.bakadesuyo.com/2010/11/does-the-price-of-mcdonalds-food-indicate-the/ |
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