Big max index was founded by Pam Woodall of The Economist in 1986, as a light-hearted guide to whether currencies are at their “correct” level. It is based on one of the oldest concepts in international economics, purchasing power parity (PPP), the notion that a dollar, say, should buy the same amount in all countries.
Some studies have found that the Big Mac index is often a better predictor of currency movements than more theoretically rigorous models.