Big Mac
In the history of the Big Mac index, the dollar has never been more overvalued
CURRENCY forecasters have had it hard in recent years. Most expected the euro to rise after its launch in 1999, yet it fell. When America went into recession last year, the dollar was tipped to decline; it rose. So to help forecasters really get their teeth into exchange rates, The Economist has updated its Big Mac index.
Click to enlargeDevised 16 years ago as a light-hearted guide to whether currencies are at their ?correct? level, the index is based on the theory of purchasing-power parity (PPP). In the long run, countries exchange rates should move towards rates that would equalise the prices of an identical basket of goods and services. Our basket is a McDonalds Big Mac, produced in 120 countries. The Big Mac PPP is the exchange rate that would leave hamburgers costing the same in America as elsewhere. Comparing these with actual rates signals if a currency is under- or overvalued.
The first column of the table shows the local-currency prices of a Big Mac. The second converts these into dollars. The average American price has fallen slightly
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