The Economist introduced the Big Mac Index in 1986 as a lighthearted guide to value of the world’s currencies. The index is based on the purchasing-power-theory and argues that in the long term exchange rates tend to move toward the rate that would make the prices of an identical set of goods and services (in this case a burger) in any two nations.
For instance, an average Big Mac in the United States cost $5.28 in January 2018, whereas in China it was priced at market exchange rates. Hence, the “raw” Big Mac index suggests that the yuan was undervalued by 40% at the time.
The Big Mac in Ukraine in January 2018 cost $1.64, which means that the hryvnia is undervalued relative to the U.S. dollar by 69%
Therefore, the hryvnia should be valued at approximately UAH 8.9 per U.S. dollar. Nevertheless, the rating indicates that the currency is considered overvalued only in three countries of the world – Sweden, Switzerland, Norway.
Burgernomics was never seen as a precise gauge of currency misevaluation, it only served as a tool to make exchange-rate theory more digestible. The Big Mac index, however, has become a worldwide standard, has been included in a variety of economics textbooks, and has become the subject of at least 20 academic research papers.