Value meal

摘要

The prospect of an end to asset purchases by the Federal Reserve has caused gyrations in foreign-exchange markets. As emerging-market currencies slide and bullish bets on the dollar grow, it is time to read between the buns. The Big Mac index is The Economist's exchange-rate gauge. It is based on the theory of purchasing-power parity (PPP), which says that in the long run exchange rates should adjust so that the price of an identical basket of goods and services is the same across borders. Our basket contains a single good: the Big Mac, which uses the same ingredients almost everywhere (India's Maharaja Mac, which contains chicken, not beef, is an exception). Since buying a burger in Norway costs $7.48 at market exchange rates, compared with an average price of $4.56 in America, the Norwegian krone is 65% overvalued on our measure.