Thursday, 14 October 2010

Big Mac Index 2010

More Burgernomics from The Economist. From the Economist website in article dated July 22nd 2010. The Economist's Big Mac index, shows that currencies continue to be undervalued in the developing world but overvalued in Europe.

The Economist writes that,
The index is a lighthearted attempt to gauge how far currencies are from their fair value. It is based on the theory of purchasing-power parity (PPP), which argues that in the long run exchange rates should move to equalise the price of an identical basket of goods between two countries. Our basket consists of a single item, a Big Mac hamburger, produced in nearly 120 countries. The fair-value benchmark is the exchange rate that leaves burgers costing the same in America as elsewhere.
The New Zealand dollar is undervalued by 4% according to this measure.

1 comment:

Anonymous said...

No no! We need massive devaluation to ensure we stay competitive in Big Mac production.

- John Walley

(Ok, not really john walley)