Grease-proof taper

摘要

Last summer mere talk from the Federal Reserve about "tapering" (ie, phasing out) its monetary stimulus through asset purchases was enough to fry emerging-market currencies. The exchange rates of the "fragile five"-Brazil, India, Indonesia, South Africa and Turkey-fell sharply. Now that tapering has, belatedly, commenced this month, which currencies look susceptible to further grilling? The Big Mac index, The Economist's gauge of exchange rates, offers some food for thought. The index is based on the theory of purchasing-power parity (ppp), which holds that currencies should in the long run adjust to rates that would make a basket of goods and services cost the same wherever they were bought. Our basket contains just one item, a Big Mac, since its ingredients are the same the world over, except in India, where the Maharaja Mac is made of chicken. Because buying a Big Mac in Norway, for instance, costs $7.80 at market exchange rates compared with $4.62 in America, our index suggests that the Norwegian krone is almost 70% overvalued.