Since 1986 we have tracked the price of a McDonald’s Big Mac around the world as a light-hearted guide to the fair value of currencies
The Economist
Compared with the rest of the world, however, Americans have escaped lightly. From January to July the price of a Big Mac has risen more than twice as fast in the euro zone andWhat does this mean for the fair value of currencies? According to the theory of purchasing-power parity, a currency’s fundamental value reflects the amount of goods and services it can buy, including burgers. If the price of the Big Mac rises, the currency can buy fewer of them. Its fair value has therefore declined.
That is no longer the case. Thanks to the rise in Big Mac prices in Europe and a small fall in the dollar, the fair value of the euro is now $1.06, less than its market exchange rate. The euro now looks overvalued against the dollar for the first time in two years.
Belgique Dernières Nouvelles, Belgique Actualités
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