A research on RMB exchange rate based on big mac index empirical analysis

Jia He

COMPUTER MODELLING & NEW TECHNOLOGIES 2013 17(5C) 83-86

School of Economics and Management, Neijiang Normal University, Neijiang, Sichuan Province, China, 641112

Based on the Theory of Purchasing Power Parity (PPP), the Big Mac Index is widely used to measure whether a country's currency is at its "correct" level since it is easy to understand and clear and also is considered to be one of the important indices for evaluating a country's currency real exchange rate. This paper performed empirical study on the Big Mac index of Australia, Britain, Japan and Singapore by adopting regression analysis model. The test results show that the regression analysis results support the PPP theory, namely the big MAC index is an effective tool to determine exchange rate equilibrium. On this basis, this paper analyzed the RMB exchange rate level evaluated by Big Mac index, and considered that RMB exchange rate is a certain degree undervalued, and will be at a slowly rising trend consistently.