Started by Kwame Darko (@kwame_d) ·
the Big Mac index started as a joke
5 sources · 23 min down the hole
How I got here
- Started with
- What is the Big Mac index actually measuring?
- Ended at
- Balassa–Samuelson effect
The Trail
- “big mac index explained” (google.com)
- Big Mac Index (en.wikipedia.org)
The Economist started it in 1986 as a lighthearted way to explain exchange rates
- Purchasing power parity (en.wikipedia.org)
- Law of one price (en.wikipedia.org)
- Balassa–Samuelson effect (en.wikipedia.org)
why burgers are cheap in poorer countries even if the currency isn't really 'undervalued'
What I came away with
If the same burger costs more in dollars in one country than another, the theory says that currency is overvalued. But a Big Mac is mostly local rent and wages, not traded goods, so poorer countries look 'undervalued' almost automatically. The Economist publishes a GDP-adjusted version for exactly that reason.
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