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Thursday, 26 July 2012

Big Mac Index 2012

And no burger blog is complete without reference to the legendary Big Mac, even if it is in relation to purchasing power parity and has nothing to do with rating the burger (which i believe sits around 7.5 to 8 on my scale out of 10).  The link is that i am a practicing economist, so when you can combine my two passions, then the rationale for blogging about the Big Mac index becomes clear!!

The index calculates the exchange rate that would leave a Big Mac costing the same in each country.  The assumption is that the product and the processes required to produce it are the same and so it should cost the same wherever it is made.  If it costs more then that country's exchange rate is overvalued.  If it costs less, then that country's exchange rate is undervalued.  Straight forward.  Easy to understand.  But a bit simplistic and there is so much more that you need to consider when discussing monetary policies...it makes my head hurt just trying to think about what i should be thinking about.

What is more fun, really, is seeing how much people pay for a Big Mac!!  A Big Mac in New Zealand is worth US$4.  IN the US it is US$4.33.  I pity the Venezuelans, who pay close to US$8 for a Big Mac, while your Scandinavians are also hit hard for their fix.  At the other end of the scale, Hong Kong pays a meager US$2.13 but are probably up against a mean kung pao chicken...


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