The Big Mac Index, introduced by The Economist magazine more than two decades ago, claims to provide the quot;true valuequot; of a large number of currencies. This paper assesses the economic value of this index. We show that (i) the index suffers from a substantial bias; (ii) once the bias is...

This paper analyses differences in the wealth of nations by comparing PPP-based cross-country incomes from the Penn Table with those derived from prevailing exchange rates. Using the Balassa (1964)-Samuelson (1964) productivity bias framework, we introduce the “international poverty line”...

Survey of literature on PPP up to July 2000. Includes a geogetric analysis of PPP theory, issues related to deviations from parity and an examination of empirical evidence on PPP.

Purchasing Power Parity (PPP), the link between exchange rates and prices, is a fundamental building block of international finance, one which has been attracting increasing research interest during the past three decades. The Big Mac Index (BMI), invented by 'The Economist' magazine in 1986,...

In 1972, just prior to the collapse of the Bretton-Woods system of fixed exchange rates, the US dollar cost about .4 British pounds. By 1985, the dollar had appreciated to .9 pounds, but by 2001 it had fallen back to about .7 pounds. Such substantial changes in currency values over the longer...

Emphasis on the interplay of real and monetary factors in determining exchange rates both in the short and long run.