The Big Mac index was introduced in The Economist in September 1986 by Pam Woodall as a semi-humorous illustration of PPP and has been published by that paper annually since then. The theory underpinning the Big Mac index stems from the concept of PPP, which states that the exchange rate between two currencies should equalize the prices charged for an identical basket of goods. However, in reality, sourcing an identical basket of goods in every country provides a complex challenge. The purpose of large big mac meal Big Mac index is to calculate an implied exchange rate between two currencies.
Typically, the base country used is the United States. In Switzerland, a Big Mac costs 6. The implied exchange rate is 1. The implied exchange rate according to the Big Mac index is 1. The actual exchange rate is 0. The Swiss franc is overvalued by 20.
The Economist sometimes produces variants on the theme. For example, in January 2004, it showed a Tall Latte index with the Big Mac replaced by a cup of Starbucks coffee. However, this theory can be criticised for ignoring shipping costs, which will vary depending on how far the product is delivered from its “single place” of manufacture in China. Billy index where they convert local prices of IKEA’s Billy bookshelf into US dollars and compare the prices. A Swiss bank has expanded the idea of the Big Mac index to include the amount of time that an average local worker in a given country must work to earn enough to buy a Big Mac. In 2017, the comparison platform Versus did a version called The Chai Latte Global Index, comparing Starbucks Chai Latte prices worldwide, by first converting the local prices into USD. Global personal finance comparison website, Finder.
