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- Title
The Adjusted Big Mac Methodology: A Clarification.
- Authors
O'Brien, Thomas J.; Vargas, Santiago Ruiz
- Abstract
The Economist's adjusted Big Mac index takes GDP into account in currency valuation, but the methodology is not explained. We show that the key to understanding the methodology is to distinguish between a currency's bilateral valuation (versus a specific currency) and the currency's overall valuation (versus a 'basket' of a large number of currencies). Also, the adjusted Big Mac estimates of intrinsic foreign exchange ( FX) rates have been better forecasts of actual FX changes than those of the original 'raw' Big Mac index.
- Subjects
BIG Mac index; GROSS domestic product; FOREIGN exchange rates; CURRENCY revaluation; DEVALUATION of currency; PURCHASING power parity
- Publication
Journal of International Financial Management & Accounting, 2017, Vol 28, Issue 1, p70
- ISSN
0954-1314
- Publication type
Article
- DOI
10.1111/jifm.12054