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Burgernomics: The Economist's Big Mac Index Offers A Light-Hearted Guide To Whether Currencies Are at Their Correct

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J Luis R Hernández
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56 views2 pages

Burgernomics: The Economist's Big Mac Index Offers A Light-Hearted Guide To Whether Currencies Are at Their Correct

Uploaded by

J Luis R Hernández
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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BURGERNOMICS
Jan 11th 2001 From The Economist print edition

The Economist s Big Mac index offers a light-hearted guide to whether currencies are at their correct levels, according to the notion of purchasing-power parity. Under PPP, exchange rates should adjust to equalise the price of a basket of goods and services across all countries; the Big Mac PPP is the exchange rate at which hamburgers would cost the same in America as in other countries. The chart shows the under- or overvaluation of emerging-market currencies, the euro, sterling and the yen against the dollar. Dividing the price, in shekels, of a Big Mac in Israel by the price, in dollars, of an American Big Mac produces a Big Mac PPP of 5.68 shekels to the dollar. Since the market rate is 4.13, this suggests the shekel is 38% overvalued. At the other extreme, the Philippine peso is almost 60% undervalued: the market rate is 51 to the dollar, against a Big Mac PPP of 21. After its recent recovery, the euro is now only 4% undervalued. The yen is close to its Big Mac mark. But sterling is 17% overvalued.

Copyright 2005 The Economist Newspaper and The Economist Group. All rights reserved.

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