Friday, July 29, 2011

The Latest (and Revised) Big Mac Index

A “beefed-up” version of the Big Mac Index is now adjusted for the level of GDP per capita, the price of the sandwich in various countries being correlated to the GDP per person.

The change affects especially the measurement of overvaluation of Brazil and Argentina, and the measurement of undervaluation of South Korea, Mexico, Russia, China and India.

While the Chinese yuan is now close to its fair value against the dollar, the euro is substantially overvalued (36 % with the new versus 21% with the old index). This is not very good for the activity in Europe generally and it adds to the burden of the PIIGS by curtailing their debt servicing capacity: low growth means reduced tax receipts.

Have a look at The Economist here .

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