The Big Mac Index isn’t the only popular PPP gauge. In 2004, the Economist made a Starbucks Tall Latte Index, which you can try to find online. (Hint: Search “cnn tall latte index.”) In 2007, two new indices appeared: the iPod Index (based on the local prices of Apple’s iPod music player) and iTunes Index (based on the local prices of a single song downloaded from Apple’s iTunes store). Find those indices online and the discussions surrounding them. (Hint: Search “ipod itunes index big mac.”) Do you think that either the iPod Index or iTunes Index is a better guide to currency overvaluation/undervaluation than the Big Mac Index? Explain your answer.
Visit the websites of some central banks around the world, for example, the U.S. Federal Reserve (http://www.federalreserve.gov/) and the European Central Bank (http://www.ecb.int/). Read their main statements of policy. Try to find out what their policy goals are in the long run. Who sets them? Is there more than one goal? What about a nominal anchor—Is controlling inflation a long-run goal? If so, what policy is used to try to ensure that the long-run inflation goal will be met? In the short run, is the main tool they use for implementing their policy the quantity of money, the exchange rate, or the interest rate?