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The Big Mac Index Two Decades On An Evaluation Of Burgernomics

Kenneth Clements, Yihui Lan and Shi Seah
Additional contact information
Yihui Lan: UWA Business School, The University of Western Australia
Shi Seah: UWA Business School, The University of Western Australia

No 10-14, Economics Discussion / Working Papers from The University of Western Australia, Department of Economics

Abstract: 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 shortterm 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.

Pages: 103 pages
Date: 2010
New Economics Papers: this item is included in nep-his and nep-hpe
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Citations: View citations in EconPapers (3)

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https://www.business.uwa.edu.au/__data/assets/pdf_ ... _of_Burgernomics.pdf

Related works:
Journal Article: The Big Mac Index two decades on: an evaluation of burgernomics (2012)
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