That’s the idea that the Big Mac can be used as a great tool to recognise currency misalignment and identify a currency’s actual buying-power. The Big Mac Index was the influence behind the concept of ‘Burgernomics’. Since then, it has become a great tool to recognise currency misalignment. The Big Mac Index was invented by The Economist as a way of making exchange-rate theory more understandable. The Big Mac was chosen as a good commodity to measure PPP back when the Index was founded in 1986 because it holds a consistent value over time. This means that, according to the Big Mac Index, the rouble is undervalued by 70.4 percent. However, the official exchange rate between the dollar and the rouble is 66.69 to $1. That’s significantly less than the $5.58 that customers have to cough up for a Big Mac in the US. Putting the jargon aside, that means that it’s an index that measures how much a Big Mac costs in countries with different currencies.įor example, the Big Mac Index reported in January 2019 that a Big Mac in Russia costs $1.65 (110.17 Roubles). It’s a way for economists to measure the Purchasing Power Parity (PPP) of different currencies. The humorously named Big Mac Index is actually a pretty big deal.
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