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Showing posts with label US Dollar Big Mac Economist Canada. Show all posts
Showing posts with label US Dollar Big Mac Economist Canada. Show all posts

February 4, 2009

The Big Mac Index

Another way of looking at prices and inflation with regard to different countries/regions is to consider the concept of Purchasing Power Parity (PPP).
Definition from Wikipedia:

"The purchasing power parity (PPP) theory uses the long-term equilibrium exchange rate of two currencies to equalize their purchasing power. Developed by Gustav Cassel in 1920, it is based on the law of one price: the theory states that, in ideally efficient markets, identical goods should have only one price."
A popular derivative of the PPP concept is the Big Mac Index, developed by The Economist Magazine. The Index is based on the notion that a dollar should buy the same amount in all countries and that in the long run; the exchange rate between two countries should move towards PPP rate and hence moves the prices of the same goods for each country towards equilibrium.
The Economist just published the latest Big Mac Index on January 22nd:

Based on the latest findings, Switzerland has the most overvalued currency whereas the currencies of South Africa, China and Russia (as part of the industrialized nations) are the most undervalued in relation to the US Dollar. Canada looks strong.