 The Economics of the Big Mac StandardLi Lian Ong Chapter 3 in The Big Mac Index, 2003, pp 51-87 from Palgrave Macmillan Abstract: Abstract In the course of purchasing power parity (PPP) research, much of the debate over validity has been over the choice of an appropriate ‘basket’ for making purchasing power comparisons. The different compositions of goods and services in these baskets across countries have resulted in arguments against their usefulness for PPP purposes. This problem is augmented by the existence of productivity differentials in traded and non-traded goods across countries. Therefore, we consider the use of the Big Mac hamburger as the international monetary standard as being a more palatable alternative. It is produced locally in over 80 countries around the world, with only minor changes in recipe, and thus has the flavour of the ‘perfect universal commodity’. Our results indicate that the Big Mac Index is surprisingly accurate in tracking exchange rates over the long-term, which is consistent with previous PPP research findings. We subsequently enhance our PPP comparisons by taking into account the productivity differentials between countries and excluding non-traded goods from the Big Mac Index to derive the No-Frills Index. Keywords: Exchange Rate; Gross Domestic Product; Real Exchange Rate; Purchase Power Parity; Domestic Currency (search for similar items in EconPapers) There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-51241-2_3 Ordering information: This item can be ordered from Access Statistics for this chapter More chapters in Palgrave Macmillan Books from Palgrave Macmillan |
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