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Burgernomics: a big MacT guide to purchasing power parity

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  • Michael R. Pakko
  • Patricia S. Pollard

Abstract

The theory of purchasing power parity (PPP) has long been a staple of international economic analysis. Recent years have seen the rise in popularity of a tongue-in-cheek, fast-food version of PPP: The Big Mac? index. In this article, Michael Pakko and Patricia Pollard describe how comparisons of Big Mac prices around the world contain the ingredients necessary to demonstrate the fundamental principles of PPP. They show that the Big Mac index does nearly as well as more comprehensive measures of international price comparisons and that deviations from ?McParity? illustrate why PPP often appears not to hold as a practical matter.

Suggested Citation

  • Michael R. Pakko & Patricia S. Pollard, 2003. "Burgernomics: a big MacT guide to purchasing power parity," Review, Federal Reserve Bank of St. Louis, vol. 85(Nov), pages 9-28.
    • Handle: RePEc:fip:fedlrv:y:2003:i:nov:p:9-28:n:v.85no.6
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    1. Ernst R. Berndt, 2007. "A primer on the economics of re-importation of prescription drugs," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(4-5), pages 415-435.
    2. Hai Long Vo & Duc Hong Vo, 2023. "The purchasing power parity and exchange‐rate economics half a century on," Journal of Economic Surveys, Wiley Blackwell, vol. 37(2), pages 446-479, April.
    3. Clements, Kenneth & Lan, Yihui & Roberts, John, 2008. "Exchange-rate economics for the resources sector," Resources Policy, Elsevier, vol. 33(2), pages 102-117, June.
    4. James Laurenceson & Kam Ki Tang, "undated". "China�s Equilibrium Exchange Rate and Trade Balance: A Tale of Apples and Pirates," EAERG Discussion Paper Series 0805, School of Economics, University of Queensland, Australia.
    5. Tzen-Ying Ling & Wei-Kai Hung & Chun-Tsu Lin & Michael Lu, 2020. "Dealing with Green Gentrification and Vertical Green-Related Urban Well-Being: A Contextual-Based Design Framework," Sustainability, MDPI, vol. 12(23), pages 1-24, November.
    6. Flavio R. Arroyo M. & Luis J. Miguel, 2019. "The Trends of the Energy Intensity and CO 2 Emissions Related to Final Energy Consumption in Ecuador: Scenarios of National and Worldwide Strategies," Sustainability, MDPI, vol. 12(1), pages 1-21, December.
    7. Thierry Buchs, 2005. "Equilibrium Real Exchange Rate In Brazil Estimation And Policy Implications," International Trade 0502013, University Library of Munich, Germany.
    8. Kamrul Hassan & Ruhul Salim, 2011. "The linkage between relative population growth and purchasing power parity," International Journal of Development Issues, Emerald Group Publishing Limited, vol. 10(2), pages 154-169, July.
    9. Landry, Anthony, 2013. "Borders and Big Macs," Economics Letters, Elsevier, vol. 120(2), pages 318-322.
    10. Andreea-Daniela GANGONE & Mariana-Cristina GANESCU & Mihaela ASANDEI, 2018. "An Analysis Of The Effect Of Purchasing Power Parity On National Competitiveness And Human Development In 21 European Countries," Contemporary Economy Journal, Constantin Brancoveanu University, vol. 3(1), pages 152-165.
    11. Yang, Jiawen, 2004. "Nontradables and the valuation of RMB--An evaluation of the Big Mac index," China Economic Review, Elsevier, vol. 15(3), pages 353-359.
    12. Duc Hong Vo & Anh The Vo, 2017. "Currency evaluation using a big mac index for Thailand – lessons for Vietnam," Economics Bulletin, AccessEcon, vol. 37(2), pages 999-1011.

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    Keywords

    Purchasing power parity;

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