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What Big Macs tell us about the disconnect between prices and exchange rates

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Abstract

The Economist's Big Mac Index is a measure of the real exchange rate that instead of measuring the price of a basket of goods and services, measures the price of one good, the McDonald's Big Mac. Recent empirical work finds that financial factors, and not monetary ones, underlay a very high correlation between nominal exchange rates and the Big Mac-based real exchange rate.

Suggested Citation

  • J. Scott Davis & Ben Kim & Andrei Zlate, 2026. "What Big Macs tell us about the disconnect between prices and exchange rates," Dallas Fed Economics 103957, Federal Reserve Bank of Dallas.
    • Handle: RePEc:fip:d00001:103957
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    File URL: https://www.dallasfed.org/research/economics/2026/1015
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