Thursday, February 16, 2017

The Big Mac Index

It's been a few years since I posted about the Economist's Big Mac Index. I think it's time for a revisit.

To recap, the Economist started the index as a way to measure global currencies against the dollar. McDonald's is very good at making their Big Mac exactly the same everywhere. In a perfect world, the currency-adjusted cost of a Big Mac in each country would also be the same as the cost in the US.

Any disparity over or below the US cost would expose that currency as overvalued or undervalued against the dollar. Over the years, the index has become more sophisticated. Their most recent index is a lovely interactive website that allows looking at all sorts of data in a range of countries.

The currency we're most interested in is the kronor, of course. It has been consistently overvalued against the dollar; in fact, the Swedish currency has been consistently overvalued for more than a decade, along with the Norwegian kronor and Swiss franc.

The good news is that lately, the kronor has been much closer to its "true" value. The Economist calculates that the kronor should be about 9.5 to a US dollar. Lately it's been about 9.2. This is as close as its gotten to parity in almost 15 years. Now if we could do something about the Pound Sterling!

1 comment:

Crude Oil Trading Tips said...

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