Currency Valuation and Purchasing Power Parity
World Economics, Vol. 12, No. 3, 2011
13 Pages Posted: 15 Jun 2011 Last revised: 31 Dec 2011
Date Written: April 1, 2011
This paper aims to highlight key limitations of “The Economist” magazine’s Big Mac Index (BMI). The Economist markets the BMI as a tool to determine valuation of currencies. This paper shows that the BMI is a misleading measure of currency valuation for economies whose markets are structurally different from the benchmark currency countries.
Keywords: Big Mac Index, currency valuation, purchasing power parity, international and regional price differences, border effect, brand perception
JEL Classification: E2, E3, F1, F2, F3, F4, F15, F23, F41
Suggested Citation: Suggested Citation