Official Website: Doesn’t exist
Published By: The Economist
Definition: Big Mac Index was a humorous illustration published in The Economist in Sep 1986 by Pam Woodall. This is an indicator of how correct the actual exchange rates are and whether they are skewed in favour of any country.
Indicators: The cost of a Big Mac Burger in a country. The ratio of cost of a big mac burger in two countries in local currencies is compared with the official exchange rate between the currencies of those two countries , there by determining, in which direction the exchange is skewed.
From Wikipedia –
For example, using figures in July 2008:
- the price of a Big Mac was $3.57 in the United States (Varies by store)
- the price of a Big Mac was £2.29 in the United Kingdom (Britain) (Varies by region)
- the implied purchasing power parity was $1.56 to £1, that is $3.57/£2.29 = 1.56
- this compares with an actual exchange rate of $2.00 to £1 at the time
- [(2.00-1.56)/1.56]*100= +28%
- the pound was thus overvalued against the dollar by 28%
- Availability of Big Mac
- Popularity of the burger. It can be an exotic luxury in a country there by increasing it’s cost or it can be a daily commodity which can reduce it’s price
- Amount of taxes paid by MacD to a country also affects the price of the burger in that country, which hasn’t got anything to do with the exchange rates of the currencies.