August 2, 2011

The Big Mac Index for Exchange Rates

The Economist has updated its Big Mac Index:

“The Economist’s Big Mac index is a fun guide to whether currencies are at their “correct” level. It is based on the theory of purchasing-power parity (PPP), the notion that in the long run exchange rates should move towards the rate that would equalise the prices of a basket of goods and services around the world.”

At market exchange rates, a burger is 9% more expensive in New Zealand than in America. In other words, the raw Big Mac index suggests that the NZD is 9% overvalued against the US dollar. Adjusting for GDP per person, the NZD is 29% overvalued.

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Rachel Cunliffe is the co-director of CensusAtSchool and currently consults for the Department of Statistics. Her interests include statistical literacy, social media and blogging. See all posts by Rachel Cunliffe »

Comments

  • avatar
    Thomas Lumley

    Daniel Davies points out that the Big Mac differs from country to country in fat content, calorific value and even weight, according to local tastes..

    And that’s even before you worry about the adjustment for GDP.

    6 years ago