Purchasing Power Parity

Posts Tagged ‘purchasing power parity’

Making a meal of it

July 23rd, 2010 | No Comments

Our latest Big Mac index suggests the euro is still overvalued

Correction to this article

THE Big Mac index is based on the theory of purchasing-power parity (PPP), according to which exchange rates should adjust to equalise the price of a basket of goods and services around the world. Our index shows that Asia remains the cheapest place to enjoy a burger, while those on the hunt for a value meal should steer clear of Scandinavia. The euro, despite its troubles, continues to be expensive when compared with many other rich-world currencies, though the British pound is trading close to its fair value. China’s recent decision to increase the “flexibility” of the yuan has not made much difference yet—the yuan is undervalued on the burger gauge by 48%. For more on the Big Mac index see article. …

14 Weird Measurements And Scales

May 25th, 2010 | No Comments

It’s in human nature to try and measure everything around us, to better understand us. However, some are not happy with meters, kilograms or liters. Instead, they create new ways of analyzing nature. Some are just bored, and create funny units. Others create new scales to look at data in new and exciting ways. But [...]

Single supplement

May 11th, 2010 | No Comments

The average single worker takes home less than his married counterpart

BRINGING up children is a pricey endeavour, but most governments offer some form of tax breaks or cash benefits to ease the burden. In all but one of 30 OECD countries, a married one-earner couple with two children takes home more money than a single person with no children on the same average annual salary. Measured at purchasing-power parity, a family in Luxembourg has the highest overall net income of $50,482 and the highest average gross wage of $50,960. Families benefit little in Turkey, and get nothing at all in Mexico. But the best country for families is the Czech Republic, where net incomes end up higher than gross earnings.

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Exchanging blows

March 17th, 2010 | No Comments

Our Big Mac index shows the Chinese yuan is still undervalued

Correction to this article

RECENT renewed American calls for China to revalue its currency have so far fallen on deaf ears. China has rejected accusations that America’s huge trade deficit with it is caused largely by an artificially weak yuan, which has been pegged to the dollar since July 2008. Economists point out that an appreciation of the yen did little to help reduce America’s trade deficit with Japan in the 1980s. But the yuan is unquestionably undervalued. Our Big Mac index, based on the theory of purchasing-power parity, in which exchange rates should equalise the price of a basket of goods across countries, suggests that the yuan is 49% below its fair-value benchmark with the dollar. …

Clocking off

October 21st, 2009 | No Comments

Are holidays good for the economy?

STRIKING the right balance between life and work can be tricky. Employees in European countries tend to have a better deal than most, enjoying more days off work than their counterparts in Asia or America. Workers in Finland, France and Brazil have the most generous statutory allowance, getting 30 days of holiday every year. Americans work longer hours: theirs is the only rich country that does not give any statutory paid holiday. (In practice, most workers get around 15 days off.) This work ethic may in turn help to explain Americans’ material wealth. Even adjusting for purchasing-power parity, America generates more wealth per person than all but a handful of mainly oil-rich economies such as Norway.

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Value meal

July 16th, 2009 | No Comments

A guide to valuing currencies against the dollar

WHICH countries has the foreign-exchange market blessed with a cheap exchange rate, and which has it burdened with an expensive one? The Economist’s Big Mac index, a lighthearted guide to valuing currencies, provides some clues. The index is based on the idea of purchasing-power parity (PPP), which says currencies should trade at the rate that makes the price of goods the same in each country. So if the price of a Big Mac translated into dollars is above $3.57, its cost in America, the currency is dear; if it is below that benchmark, it is cheap. A Big Mac in China is half the cost of one in America, and other Asian currencies look similarly undervalued. At the other end of the scale, many European currencies look uncompetitive. But the British pound, which was more than 25% overvalued a year ago, is now near fair value.

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