Big Mac Index

Measure of the comparative valuation of international currencies against the US dollar. The index was started by The Economist in 1986.

The theory is that a dollar should have equal purchasing power in all countries. This means the exchange rate between two countries should move over a period of time towards a rate that equalizes the price of an identical basket of goods and services in each country. The Economist chose a basket that consisted of just one good, the Big Mac. The McDonald's burger, being so widely produced in countries around the world, was a good candidate for this type of exercise, and led to what The Economist light-heartedly referred to as ‘burgernomics’. The Big Mac purchasing-power parity (PPP) is the theoretical exchange rate between dollars and another country's currency that would mean the hamburger costs the same in the USA as in that country. A comparison of the actual exchange rate to the PPP shows whether the currency is under- or over-valued.