Saturday, February 23, 2013

The Big Mac Index

The Economist has published something they call the "Big Mac Index" for over 25 years. It started as a light-hearted look at purchasing power parity amongst countries around the world.

The idea is simple: the average cost of a Big Mac in the USA is set as the baseline. The cost of a Big Mac in another country is compared to the US price. Comparing the two prices gives an "hamburger exchange rate," if you will. This can be compared to the actual currency exchange rate.

This year's index is interactive, and it has kept me entertained for some time now. Of most interest for our readership, of course, is how a certain Nordic country fares in the index.

It appears that Sweden has one of the most overvalued currencies in their league table. In fact, in this past year, the official exchange rate for the kronor was almost 75% lower than the Big Mac rate, and that's been consistent over the years.

Is this good news or bad news for an ex-pat such as myself? That depends on your point of view. For transferring money from the US right now, it's not that great. My dollar buys almost 10% less than it did last summer. On the other hand, the value of my home in Sweden is commensurately higher in dollars. So short-term, a strong kronor is a bother; long-term it's a good thing.

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